Yum China Holdings, Inc. (YUMC) Earnings Call Transcript & Summary

Hello, ladies and gentlemen. Welcome to Yum China's 2025 Investor Day. My name is Florence Lip, Senior Director of Investor Relations. We have a full agenda today. This morning, our management team will present our latest strategies, followed by store visit in the afternoon. Some of our management will present in Chinese. Simultaneous interpretation from Chinese to English will be available. For our guests here in Shenzhen, if you need a headset for the translation and haven't got one, please raise your hands and our staff will assist you. For our online audience, you may also choose the appropriate channel by following the instructions online. Our Investor Day presentation contain forward-looking statements, which should be considered in conjunction with the cautionary statement in our presentation and the risk factors included in our filings with the SEC. Management presentations will be uploaded to our IR website after each session. Without further ado, let's get started. [Presentation]

Thank you. Thank you. Very good morning, and very big welcome to all of you to Shenzhen. It's a city of energy and speed and innovation. And so after 2 years, it's truly wonderful to see so many of our investors, shareholders and everyone who love our company to come all the way to Shenzhen. And those online, welcome as well. So heartfelt thank you to all of you. And in addition to that, heartfelt thank you to our employees, our customer, shareholders and everyone. So we have about 40, 45 minutes here for my session, and I would like to focus on three things. First is to have a very brief recap of what we have achieved together, particularly since 2016, since when our listing in NYSE started. Second, our belief or philosophies. I'll talk about why we go there. And then the third is our strategic priorities or our strategy for the next 3 years and beyond. So three things. Let's have a recap of our journey in China. You might -- many of you might remember this chart. We shared that in the last Investor Day back to 2023. This is like the journey, right, the GDP growth rate and then our new store opening. And it's quite cool to look at. It took us 33 years to build the first 10,000 store. But then it took us -- it's going to take us another just 6 years to get to the next 10,000 store. So last time when we are here, we are at 13,000 stores. Then we set a target of 20,000 stores by 2026. And I'm happy to report to all of you that we believe that we can get there next year. Now before I go to the next slide, I would like to also point out that the China market, as you can see has been very dynamic and the position of the top 10 players in our market has been dynamic. And the next slide is to show how our market position by system sales evolved during 2016 to 2024. Simon, please? So I don't know whether you can see the movement. So for the top 10, the positioning of the top 10 has moved quite a bit, except the top 1, and that's us. So for nearly a decade, we have stayed firmly at the top as China's largest restaurant company by system sales, well ahead of our competitor year after year. So someone funny summarized this chart saying that [Foreign Language], which roughly translates to the champion still champion. I know for those people who understand the Chinese, it's not exactly that translation, but you got the idea. Our leadership in the marketplace has translated into proven track record from top line to bottom line. So look at the system sales 2016 to 2024, over 9 years, system sales grew by 60%, 1.6x. Margin expansion happened as well given our scale. And then the operating profit increased 80%. So these are all three dimensions that we have delivered. And in our industry, we call these three dimensions, the combination of three called impossible triangle because if you develop one, the other one suffer. To improve on all three dimensions, it is a bit challenging, but we have done it. So building on this result, our diluted EPS has increased by 70% since listing and delivering, of course, more value to our shareholders. Before I -- well this is pretty much the recap of our past, very quick. And then I'm going to talk about the philosophy or beliefs. And the question is why? Why bother talking about philosophy and belief? Why not go straight to the strategy bit. Over the years, I met a lot of investors and shareholders. Some wise one asked me very good question, focused on what I believe, what management believe because whatever strategy that we put together actually are indispensable from our philosophy and belief, particularly during the tough time, such as pandemic and many other challenges. And you guys seems pretty wise to me today, all of you here and online. So I thought it would be good to talk about our fundamental belief behind the strategy so that you really understand management's thinking in a very deep and core level. First belief is our commitment and belief in value for money. Very sharp value for money. Of course, some of you guys ask me, what has been the secret recipe to deliver profitable growth in the short term and long term? Well, in a simple way, sometimes it's not only about what do we do, but what did we not do. From this chart, you can see like the price index has a very simple calculation. It's our sales divided by how many items we sell. And that's the average price of the product we sold in both brands. We did not really price inflation in the last 9 years. It does not mean that we did not increase price. The way that we do it, we expand the price point. We come up with new products so that we still deliver the transaction growth, can see 40% transaction growth and almost 90% transaction growth for Pizza Hut while expanding the operating profit. But is it the best way to describe value for money? Not really. There are some Cantonese-speaking people here, I'll tell you my favorite way to describe value for money, [Foreign Language]. Let me do some translation here. I'm not sure that simultaneous translator can translate to Cantonese here. Good price, amazing quality and authentic, all three at the same time. That is value for money, [Foreign Language]. See, many of Yum China employees actually know these three Cantonese word. I love Cantonese. It's very, very vivid, so beautiful language. But for value for money, we have slightly different take for KFC versus Pizza Hut. For KFC, we have kept it relatively steady. By having a relatively steady price or ticket average or price index, we deliver more value. New product, emotional value. For Pizza Hut, we have gone very aggressive. The price index now is only 70% of what it used to be 9 years ago, and thank God, we did it. If we did not do it over the years, we'll be in much tougher position today. So we have anticipated that since 2016, when we decided we're going to be very, very sharp on value for money. Because -- of course, have some history behind. 10 years ago, both KFC and Pizza Hut, we were in sort of turnaround situation. In the turnaround process, we have learned this is critical. We need to commit to it. It's easier said than done. I mean, everybody can do -- want to do it, but whether you can transform all aspects of the company to deliver the extra value, extra profit for the shareholder while keeping the price very reasonable. That's the tough bit. But it's a must, and we have done it. So in Chinese, we also call it [Foreign Language] pricing or value for money determines survival. But it's just part of the story. What is our second belief and second philosophy. A company like us, of course, we challenge ourselves thinking about how to grow and grow faster, grow stronger even with our current big scale of business. Well, our commission comes from building a strong foundation just like how Bamboo works. We find inspiration in it, well, what are the reasons? One of the reason is I'm from Fujian. I grew in a hometown where my parent's house was at the bottom of the hill and in the hill, there's a big bamboo forest. Of course, it impact me. That's my background. And there are a few things about Bamboo that you might or might not know, you can use the AI to look for more facts later on. Little do some people know before the Bamboo shoot break the ground, it actually took years, 3 to 5 years typically to grow a very sophisticated root system underground in [ darkness ] and interconnected underground when you cannot see it. And then when this is done, with a little bit of water, it grows rapidly. It breaks the ground, it grows rapidly. How rapid Bamboo can grow up to 1 meter a day. And then it grows to meter, it flowers, then it stop growing taller and it start to grow wider. So within a very short time, we can think about Bamboo within months or if not a year, it will become a forest. Bamboo never stands alone. It always grows as a forest. And once a forest, it can endure storms with resilience. And I think as smart as you are, you know where I'm going, what I'm talking about already. The interconnected root system represents our core competency under the, the procurement, food innovation, food safety, the, you name it, interconnected is strong and solid. Therefore, with the strong foundation, it fuels the growth of our emerging business like K-Coffee, KPRO, Lavazza, Pizza Hut. And these business are breaking through the ground right now. And once they do, they do grow fast. The third philosophy, our ultimate belief -- and by the way, if I were to pick 1 out of the 3, this will be it. People first. People first, people first, [Foreign Language] important thing we speak it three times. And RGM is at the heart of our culture. We stay close to frontline, listen to the voices of our restaurant manager. We empower them through the digital tool like AI automation so that they can focus more on customer service. Beyond competitive pay, we try our best to look after our store manager. Jerry Ding is going to cover more in detail later on about our belief in people. We do take care of them. One example, which we are very proud is to provide very comprehensive medical insurance, including their families and their parents. And the level of support is so value that many [ RGMs ] joke that they need to get their parents' approval to change job. See, if they change job, their parents lose the medical insurance, and they could not find it somewhere else, simple. And our commitment in talent have been recognized. Yum China, we are very grateful that have been named top employer of China for a seventh consecutive year, ranking #1 in our industry. So let me introduce our management team on the screen, and they are sitting here looking very nice and smart. If I could ask them, stand up, turn around, say hi to our wonderful friends here. Thank you. You will see many of them during the presentation on the stage later on. And then we also have Chief Legal Officer, [ Ping Ping ] and Chief Development Officer, Howard here as well. Feel free to ask them questions. I'm deeply grateful to this outstanding team. I'm very grateful to the team's collective talent, dedication and leadership. Thank you. Thank you, guys. Now we have covered the three belief and philosophy. Let's talk about our RGM strategy for the future. RGM, again, carries a dual meaning. It stands for Resilience, Growth and Moat, but it's also a simple and meaningful way to honor our Restaurant General Manager, the most important people to our strategy. RGM 1.0 focus on resilience. RGM 2.0 place greater emphasis on growth, and we are at RGM 3.0. We focus on all three dimensions. We are a little bit more greedy now because we feel that we are ready to have a balanced approach focused on resilient growth and moat at the same time. And the RGM 3.0 is driven by two complementary forces, see the two engines, innovations and operational efficiency. Innovation helps us improve operational efficiency in scale and our expertise in operational efficiency in turn, allow us to keep innovating for future. These two has to happen at the same time, and they actually nicely reinforce each other, like an infinity loop, maintaining sustained momentum. This is a summary page, quite an important page and worthwhile to spend some time on this one. With the RGM strategy, what are the operational strategies supporting the RGM strategy. And this pretty much covers the rest of my presentation and highlight the theme of all the rest of the management presentation this morning. So it's worth spending some time here. In the past, we focus on single store efficiency. I'm looking at the Resilient bit now. Now as our business has become more diversified, we move towards what we call front-end segmentation and back-end consolidation. So front-end segmentation to serve customers more effectively, really looking after their needs. But then back end, we try to have even more efficiency coming out of it. In Chinese, we call it [Foreign Language]. Second, when it comes to growth, we have much deeper understanding of our core competencies in the last few years. We now anchor our ambitions around our core brands, particularly KFC and Pizza Hut. They are sub-brands, KPRO and K-Coffee Cafe and then Pizza Hut and modules, many smaller modules. It's very flexible. That is one area of growth. The other one, which we started to make the shift last year, we are shifting from mainly equity-driven business towards equity and franchise hybrid model to drive faster and even more efficient incremental growth. Third, we continue to deepen our strategic moat. I will talk more later on. We are evolving from a business driven in the past, mainly by physical store to the current one, thriving in both physical and virtual world. Just hang on a little bit later. And then the last two strategic is our supply chain is becoming more integrated and agile. Last but not least, we are moving beyond digitization. We are currently deploying Agentic AI to unlock new levels of efficiency. And this is RGM 3.0 more resilient, more innovative and more efficient and ready for the future. So now I'm going to go to our RGM strategy one by one. Starting with the front-end segmentation and back-end consolidation. Well, China is a very, very big market and the customers have very diverse needs. You can customer -- you can segment the customer needs in so many ways. Here's just some example, [ by day part ], by gathering moments, by channels, IP collaboration is the emotional value, you name it. The list can be very long. But we know that we can serve customers more effectively through the different brands, different modules, different occasions. We can see that from our numbers and customers like that. And these needs are evolving, too, right? So KPRO is a good example. We are in Shenzhen. Shenzhen, we have more K-Pro than any other cities in China. In Tier 1 city, KPRO is a fantastic lighter option with energy bows or superfood smoothies, capturing the fast-growing light meal market. And by the way, the business is particularly good on Monday. [Foreign Language]. Why on Monday? This is about consumer insight because for normal restaurant business, Monday is not the busiest day. But for KPRO, it is. Because typically as human being, we might have eaten slightly too much over the weekend. And then by Monday, we might feel slightly guilty that we want to have a slightly different choice. And by the way, these are all KFC customers, most of them KFC customers. See, we offer different choices with different options at the right time. And on the back end, we focus on driving synergies. To this end, we aim to be both best-in-class but also best in cost. We want both cost and quality. We want both. How do we do it? We first streamline our menus, not only menus that customer or you can see in the store, but the ingredients behind that you cannot see. That is also a big saving, and that's even more difficult to streamline than the front -- than the menu that you can see. And we also centralized key process like centralized recruitment and training, one-stop RGM service center. And third, Mega RGM synergy and technology. Among all these 4, I would say the Mega RGM is probably the most significant among all because RGM, they are the most important group of people. And in the past, we just don't have enough very good RGM to open that many stores. They were -- used to be the biggest bottleneck for us to open new store because when we open new store, not only we want new store, we want good new store. And the best predictor of a good new store is a very good RGM. But now we are at a very nice position that our RGM can manage multiple stores. We don't have the bottleneck anymore. Therefore, we can continue to build more and very good stores. So looking ahead, we are confident. So these efforts are paying off and our operational efficiency has been very strong and will continue to be strong, and here are some numbers. Marketing efficiency, this is again 2024 versus 2016. Marketing efficiency has improved by 55%, greater scale of our business and very innovating marketing team. They help deliver. Rent. Rent cost as a percentage of company sales has decreased by 170 basis points, and that's very nice. Even better, the rent structure is more resilient. This year, about 70% of our new leases for KFC and Pizza Hut stores are variable rent. Flexibility is good, resilience is good, and we built into the structure. And that number is a lot less in the last 9 years ago. That's for sure. And then what else, look at the CapEx. KFC, overall per store basis, 35% less. Pizza Hut even more, 50% less. Of course, it's a result of both smaller store and innovations is a combined result. And the key benefit here, which I'm sure you have already figured out is the [ sunk ] costs are even lower because for the cost here, it includes the [ sunk ] cost and equipment that we can move. So with this kind of number, the [ sunk ] cost is even lower that minimize the cost of making mistakes, which is important for our size of business. So with resilience in place, let's move on to the next topic, growth. I'm happy to report that despite the market dynamics and the concern of macro, we still see China opportunity remains extraordinary. On purchasing power parity basis, China is the world's largest consumer segment, which is about 1.6x the size of the U.S. So despite the per capita spending is less, we just have a lot more people. And after 38 years, we are still only serving about 1/3 of the Chinese population. And our midterm goal is to serve half of the Chinese population by 2028. And then we look at the restaurant industry, it still offers tremendous growth opportunity. People are on the move and going out more often. By 2030, urban residents are expected to dine out 5.5x per week, up from 3.5x, only two more times, but the growth is very nice and very great, very big for the market. And then in our industry, the chain restaurant penetration is still low. It's only about 20% and it's quite difficult to be at 50% in more developed market like U.S. So with all the macro opportunity, we see long runway for the growth ahead, particularly in lower-tier city. So there are two numbers here. So this is the KFC store count, not system sales, store count share among top 5 QSR players. In Tier 1, Tier 2, 25% system sales-wise, our share will be higher, but our local competitor, their stores are smaller. So the store count number is a bit lower. And then you look at the Tier 3 and below cities, it's only 15%. So you might ask, does that mean that Yum China is not doing as well in lower-tier city compared to Tier 1, 2 cities? Well, I'm very happy to report that, that's probably a fair statement. And I'm happy to see that. Why? Potential. Market potential is here. We are not having our fair share of market or store in the lower-tier cities yet. Yet. But now we have innovative store model. We have really good product. We have good value for money. We have confidence we can do it. I mean for Tier 1 city, in particularly, you might already have a question, what if the macro improves a little bit, can we have a bit more pricing opportunity? And I would like to say that that's the upside. That's not built into our model yet. That would be very nice to have. Even exchange rate moving our way will be also another upside. But for the lower-tier city, we see the opportunity there. So with the innovation and operational efficiency, we are setting a milestone, a target that by 2030, we want to increase KFC's lower city penetration from 2,500 to 4,500 cities, almost twice. And that's the milestone we set today. So with that, Simon, please go to the next page. Yes. Thank you. It's time to look at KFC, our flagship brand. It remains a resilient fortress behind our growth, and you will not miss the number at the title here, right? We are aiming for a new milestone, becoming China's first restaurant chain to achieve RMB 10 billion operating profit in 2028. And this target is grounded in KFC's solid foundation, much like the LEGO bricks. I like the LEGO bricks, robust, flexible, always further to build further. Imagination is the ceiling, not to mention that 80% of my son's toys budget was with LEGO for sure. Fantastic concept, and we learn from this amazing company. Even at KFC scale, significant growth potential remains. We continue to reach new customers and unlock new occasions. Like in Warton's presentation later of KFC brand manager, he's going to go through the K-Coffee, KPRO and then KFC small town. And I would like to introduce one new concept here, the Gemini store. What is Gemini store? So when we open new store in lower-tier city right now, we have tested this year. We believe that we have some mileage in this. We opened a pair of stores, KFC store and Pizza Hut store at the same time because now with the Pizza Hut bowl model, which is perfect for lower-tier city, they can share the customer and they can even drive the traffic for each other. today, KFC, tomorrow, Pizza Hut. And then we share a lot more equipment, resources, recruiting, everything management behind the scene in lower-tier city that's far away from Shanghai. This Gemini model is just perfect for lower-tier cities. And another simple way to think about it, if you want to have a lot of kids, having one kid at a time is good, but having twins, many twins at the same time is even better, simple. Let's move on to Pizza Hut. My humble suggestion is do not underestimate Pizza Hut China. I know there are concerns towards Pizza Hut as a brand around the world. We all have heard the news. But Pizza Hut China, after multiple years of hard work has reached an inflection point last year. And since then, Pizza Hut is on a search. Look at the store number. It took 23 years to build the first 1,000 Pizza Hut. And Pizza Hut during quarter 3 this year, just reached 4,000 stores. And the last 1,000 store only took 2 years. That's pretty decent. And then again, I'm sure you have seen it already. Right now, Pizza Hut, we are aiming to set the milestone to double the operating profit to more than USD 310 million from 2024 to 2029. Jeff, [indiscernible] in Pizza Hut will talk about it a bit more. And if you still remember our turnaround journey of Pizza Hut many years ago, we are very clear about our priorities, sales first, profit later. Now we have the sales in store, Jeff, we are ready for more profit. No pressure. Let's talk about our emerging brands. Emerging brands with a lot of hard work under the soil, behind the scene, actually gaining momentum. First, let's talk about Lavazza. I mean, Maggie will talk -- we have a presentation on Lavazza later on. 5 years of hard work underground, trial and errors, Lavazza has built a very solid foundation. There are three facts I want to share with you right now. First, Lavazza this year has delivered double-digit like-for-like growth. We like that, don't we. Second, the stores opened in the last 2 years have been profitable at the store level, well done, Lavazza team. Third, the retail business, namely the Beam business, the Drip business, the Concentrate business, they're profitable. It's good scale to grow is lovely, it's profitable. By the way, we also built a local roasting plant in China behind the scene without telling too many people. So the foundation has been good. And we are ready to break the ground and to ready to scale with professional coffee positioning. Chinese dining, like we went through the journey thinking that the Chinese dining is also -- can be also part of the Bamboo forest. After a while realized it probably slightly different species. It's same thing but different. So it took a bit longer to connect the root. But this year, we are having this pretty decent breakthrough, again, side by side, not twins, almost twins, side by side, [Foreign Language], put them together, a lot of synergy we can get out of it. We have some pretty interesting momentum out of it already. But Chinese dining as a sector is struggling a bit more in the current macro situation than the [ QSR ], but some nice momentum and encouraging results so far. Taco Bell, another slightly different little bamboo. But this year, we also see double-digit growth in same-store sales in the first 3 quarters, and this year, we do expect to achieve store level cash flow breakeven for the first time. So all going to the right direction, some faster and some slower, but it's very hard for the smaller brands to compete with the two big brothers in the company, namely KFC and Pizza Hut, but they have to keep work harder. So I've covered the growth on the brands. What is the second one I have covered earlier, equity franchise hybrid model as a growth accelerator. We really start to make the shift and determined to focus on that since 2024 last year. The two focus for our franchising strategy, lower-tier city and strategic channels, such as highway station, tourist location, strategic channel typically are those places where it's quite hard to get the site or even universities or hospitals, these are strategic channels. We now have more than 2,000 franchise stores in our system, and we aim for over 5,000 by 2028. In terms of system sales, you can see we are aiming to double that system sales mix by 2028 as well. So our transition Okay. Our transition to the hybrid model is a strategic evolution grounded in decades of experience and learning. There's some good learnings, some more challenging learning, but they're all good learnings. We have developed innovative store models and that deliver attractive payback for our franchisees. Without attractive payback, it's just talking, right? It's not real. So what makes this shift so powerful, of course, is the add value that it brings to Yum China. It allow us to deliver stronger return on invested capital over the longer term. It make our business more resilient, which again is nice. So that concludes the growth session. Let's move on to strategic moat. So I don't know how do you feel about that little swipe, KFC, K-Coffee, KPRO and [Foreign Language], The Tea Concept. So traditionally, we have the physical store, right? We build stores. That's what we start. But then in the last many years, we actually have also been building virtual space. This concept, many companies are doing it, but it's not very clearly articulated. And let me be very clear today, virtual space to stay relevant with consumers. Why this is so important? Because people, especially the younger generation, younger than me, right? They live in two different worlds right now, the physical world and the virtual world. And both worlds are important. I'm not sure whether it's equally important or which one is more important than the other, but we have to address that. So when we have KFC takeoff in April Day, you can imagine between these concept, there's a door in between. Customer can walk from one store to the next door to the next door. Similar idea here with a swipe, you can move from one store to the next store to the next store. Virtual space, physical world, they kind of connected in a very subtle way. So soon, very soon, I hope, we aim to let consumer move seamlessly between the virtual space from KFC to Pizza Hut as well, all within one app, but it's in the plan right now. So in our virtual space, we have -- you guys all know the number already, more than 500 million members in our system. But in terms of active member means those customers who shop with us in the last 12 months, the number is about 265 million. And even with 265 million, which is not a small number, this will create some cross-sell opportunity, as you can imagine. One example is most of our K-Coffee cafe and KPRO members are actually KFC members, but most of the KFC members, they have not tried KPRO or K-Coffee yet, and that's the opportunity. What is the next two strategic moat? Highly efficient supply chain over the past 38 years. And in the last few years and going forward, our integrated procurement system will continue to help up this business going to the next expansion phase, supported by dynamic pricing and consumer-centric food innovation, consumer-centric food innovation. Right now, last year, instead of launching 500 new food to customer, we actually launched about 600, even more. Some are [ LTO ], some are [ hero ] product and occasionally new growth drivers. And our logistics network is agile, and we can already cover 5,000 cities in China. Remember, the 4,500 cities that we want to go to in a few years, the supply chain is there already. We built the support network there already. It's not a question whether a supply chain can support in any of those 4,500 cities. Even now, yes, we can. because supply chain has to be ahead of the rest of the business expansion. Howard, our Chief Supply Chain Officer, will share more about the supply chain strategy. Behind all of this is the technology. For years, we have been on a journey of digitization, many years. And we have really big, high-quality transaction and operation data since 2015 when we start to build the CRM system. This gave us a head start. Today, we are stepping into a new era defined by Agentic AI. Leila, our CTO, will share how digital and AI support our business. So this is a page that you are probably looking for, and Adrian will have more details in his session at the end of this morning's presentation. With everything we've built, we have a clear vision for the future. In the near term, we remain confident in meeting our quarter 4 and full year guideline. We do see early signs of improving consumer sentiment, which is nice to see. And looking ahead, our ambition is to reach 20,000 stores next year and then 30,000-plus store by 2030, a milestone I look forward to celebrating together with the fantastic Yum China team and hopefully, with you all. By then, we aim to grow our active member to 400 million from 265 million right now. Along the way, KFC aim to exceed RMB 10 billion operating profit or USD 1.4 billion at the current exchange rate. If the exchange rate move to us favor? Wonderful. And there's a good chance that it will be the first restaurant chain in China to achieve that. And by 2029, Pizza Hut expect to double its operating profit to over USD 310 million compared to 2024. And by 2028, we also look forward to deliver $1.1 billion in free cash flow. Our CFO will talk more. So with a clear ambition, we are moving forward with confidence under the RGM 3.0 strategy. Looking ahead, our vision remains unwavering to be the world's most innovative pioneer in the restaurant industry. Thank you. Now please welcome, Warton. [Presentation]

[Interpreted] Dear investors, dear friends, ladies and gentlemen, good morning. Welcome to Shenzhen and welcome to our Investor Day event. My name is Warton Wang. I'm the General Manager of KFC China. Thank you for your support to the KFC brand. Today, I'll talk about three things. First, our confidence and conviction in building long-lasting brands. And second, the opportunities we see for future brand growth. Third, also talk about our RGM 3.0 strategy focused on brand Resilience, Growth and Moat. There's no doubt that KFC is one of the most successful restaurant brands in China. According to statistics, the average lifespan of restaurants in China is only 2 to 3 years. In comparison, KFC, now with over 10,000 stores has thrived in China for 38 years and continues to grow rapidly. This makes us extremely proud and grateful and also gives us the confidence and strength to face future opportunities and challenges. First, we have many, many iconic classic products that have collectively established KFC's leadership in the Western [ QSR ] segment. There are two products, I'm sure you're already very familiar with Hot Wings and Zinger. Each has an annual sales of RMB 4 billion. RMB 4 billion, what does that mean? It means that the sales of a single KFC product have surpassed the annual sales of 70% of Asia listed companies. That's truly remarkable, and we are very proud in our Hero products. In addition to these classic products, we continue to innovate, and that is widely recognized. Over the past few years, Taco, Double-Down and Original Recipe Chicken Burger, et cetera, have gained market recognition. Forever tasty is our sole promise to consumers. Beyond products, Convenience is also a core competitiveness of the brand. For the time being, KFC China operates over 12,000 stores across more than 2,500 cities nationwide. Our extensive footprint is enabled through brand strength and also flexible models. Now we operate with four store formats. The classic store is the basic format, covering approximately an area of 170 square meters with a CapEx of RMB 1.6 million. Its design is now brighter and simpler. And over the past 2 years, the CapEx for new open stores has been reduced by an additional 10%. Then the flagship store is specifically designed for unique business statistics to highlight the theme of the commercial district and spirit of the brand. Then the compact format is adopted for higher tier cities through optimized kitchen workflows, compact special design, precise capacity installment and higher seating efficiency, it significantly reduces the full area and CapEx. Then there is the small town format, which was developed 2 years ago to facilitate the rapid expansion into lower tier cities. It covers an area of 100 square meters with a CapEx of RMB 500,000 to RMB 700,000. So far, we've entered 400-plus small cities with the store format. With these efficient and flexible models, the brand has the ability to expand rapidly. We hope that where there are people, there will be a KFC store at your service. KFC also enjoys a broad consumer base. We now have over 500 million members. As we celebrate the milestone of reaching 10,000 stores, we asked ourselves one question, why do Chinese consumers choose us? The answer comes from extensive nationwide consumer service. First, consumers find us highly convenient. Indeed, our network of 10,000 stores makes KFC easily accessible. Whenever consumers need us, we are ready to serve them instantly. And second, consumers also trust us. We have an extensive network. Nevertheless, we have maintained very high quality consistency in our product and service offerings. Many consumers say that when they visit an unfamiliar city and have no idea what to eat. KFC is often their faster choice. Consumers also appreciate our constant innovation, whether it's our products, marketing campaigns, our games and toys, at KFC, there's always something new and exciting, conveying the sense of brand vitality. Last but not least, the feeling of ease and comfort. Whether it's meeting up with friends or grabbing a 1-person meal, or simply hand out in the store without ordering anything, just waiting for someone killing time before a ride or scrolling through their phones, consumers feel comfortable and relaxed in the KFC stores as if they were at home. This brings KFC brand closer to our consumers, attracting more people into our stores. We also have an outstanding brand operating team. Across the country, we have 6,000-plus RGMs, Restaurant General Managers, leading over 200,000 restaurant crew members in serving our customers every day. RGM #1 is our most important culture we firmly believe that the success of each individual store collectively builds the success of the KFC brand. All operating leaders regardless of their current position are promoted from RGM. They understand store operations emphasize with the challenges and hard work of RGMs and are genuinely motivated to help solve on the ground problems. This ensures that our highest standards and the best practices are effectively passed down. With the RGM #1 culture and an experienced operations team, we are confident to expand KFC presence across the entire country. Over the past 5 years, we've navigated tremendous external changes, the pandemic trade frictions, tariff disputes, aggregator competition among others. Thanks to the trust that consumers place in us, the dedication of our team and strong support from our partners, the brand has maintained steady growth throughout this period. By the end of this year, we expect to grow the number of stores to nearly 13,000 nationwide. And with system sales and profit growing at 5% plus CAGR. More importantly, our team capabilities have rapidly evolved, whether in product innovation, store model innovation, membership program design or efficiency improvements, our brand has developed new insights and new competencies, opening up broader opportunities for future growth. Looking ahead, lower-tier markets represent massive opportunities for the brand. First, we are now entering more cities. On one hand, China's urbanization is accelerating population concentration and many lower-tier cities and towns are quickly expanding in size. On the other hand, we continue to innovate our models, so lowering the threshold for entry into new cities. Currently, there are 2,000-plus unpenetrated cities and more than 3,000 whitespace locations in strategic channels for us to tap into. Another opportunity is to reach new consumer segments. In China, the living conditions of budget or value-conscious consumers are improving rapidly with their income growth significantly outpacing the national average. This group has a strong desire to enhance their quality of life. So for the brand through product and marketing innovations, we're also penetrating this previously hard-to-reach consumer segment. So this will also be a key source of future incremental growth. In short, whether it's lower tier cities or value-sensitive consumers, the alignment between our brand strategy and evolving market dynamics presents enormous opportunities. Another growth opportunity lies in the continuous emergence of new occasions. Coffee and tea drinks are currently booming. The segment is large and growing rapidly. The healthy light meal category holds strong long-term potential, although it hasn't yet scaled up, we have a chance to establish first-mover advantage. And then drivers always have this need for drive-through services. So with the continued increase in private vehicle ownership, we believe this segment also boasts great potential. Additionally, fried chicken and other indulgent snacks are thriving. This segment is very close to our core capabilities and well within our operational scope offering ample room for future expansion. There is a lot we can do. Our current challenge isn't a lack of possibilities, but rather how to execute business initiatives steadily and efficiently, stay grounded in our core strength and capabilities while also making disciplined explorations on new frontiers. RGM 3.0 is our strategy for future brand expansion, resilience, growth and moat. Balancing these 3 will deliver future growth well ensuring stability. We are fully committed to reaching the next milestone of opening another 10,000 stores and achieving the ambitious goal of 10 billion plus operating profit by 2028. So the next important question, how -- let's start with store expansion. In the coming years, our strategy for opening new stores will be twofold, increasing store density and high tier while penetrating lower-tier markets. So on the left-hand side, you can see that is our Tian'an restaurant or fast three-in-one format, which you will visit this afternoon. And then KPRO, KCOFFEE Cafe have their distinct image, menu and dining area, yet the share back of office infrastructure equipment and are managed by the restaurant team by the same restaurant team. So this model maximizes the utilization of resources. And this is one of the important ways to execute our high density and competition strategy in high-tier cities. On the right-hand side is a franchise store in a small town in Henan province. As already being alluded to by our CEO, you can see that after several iterations, our small town model now requires an investment of only RMB 500,000 to RMB 700,000. Franchisees can recoup their investment in 2 to 3 years, making it extremely popular among franchisees. So with such a flexible small town model and with AI empowerment, we are more precise in location selection and also with new technologies such as agile kitchen, this lowers our investment cost per store. We are also adopting flexible rent structures for different store models. And with these initiatives, the brand can rapidly expand into currently untapped cities and commercial districts. The second lever is our franchise strategy. Focusing on 2 things: first, enter small towns and remote areas with the franchise model to enhance the efficiency of store openings and management; and second, is to tap into previously unpenetrated strategic channels by leveraging franchisee resources. Over the past 2 years, through franchising, we've entered over 400 white space cities and 500 unpenetrated commercial districts. Notable examples include prestigious universities like Renmin University and Xiamen University and famous sync spots such as Mount Tai and Mount Lu. This year, franchised stores will account for 40% of net new builds, making franchisees an essential contributor to our brand growth. Managing and serving franchisees effectively is crucial. We now adopt a one system, one process policy across franchise and equity stores in terms of restaurant design, equipment and facilities, operational standards and centralized procurement of raw materials. The cashier system of franchise stores is also integrated with the brand, allowing real-time tracking of sales data. Our team regularly audits and evaluates franchisee performance and underperforming franchisees will be disqualified. In addition, we have launched the RGM copilot program for franchisees. With integrated data systems, AI comes up assistance in consolidating and analyzing management data, identifying operational gaps and providing suggestions for improvement. These new systems are available for all franchisees for continued empowerment ensuring food safety remains our #1 priority when growing our franchise business. Therefore, effective management and empowerment of franchisees from a critical foundation for sustainable franchise growth. Now let's shift to sales growth. We focus on 2 strategic directions. First, then the call, including our product strength, value-for-money offering, channel mix and IP collaborations, which constitute our core competency and underpin our business performance. We will continue to invest resources to solidify these basics. On this basis, we will scale up 3 new engines. First, tapped into the value-conscious groups with targeted product design and channel optimization. Reaching this large demographic will unleash huge growth potential for the brand. Second, high-frequency occasions, focusing on coffee cafes, drive-through pickups and flight chicken and skewers. And third, explore future-oriented business fronts, such as KPRO. Let me now elaborate on how we plan to strengthen our call. Starting with improving product strength. The focus is here. First, continue to reinforce the popularity of our 6 classic products. With the combined sales expected to reach 22 billion this year, accounting for 30% of total sales. Next year, we will leverage quality improvement, continued innovation marketing campaigns and ingredient supply optimization to further grow the sales of these hero products and build a moat based on unparalleled sales. Second, reinforce our leadership position as the chicken cooking expert. We launched the first whole chicken product in 2012. And the sales of whole chicken are projected to exceed 2 billion this year and are on track for faster growth next year with the addition of full baked whole chicken. There's another focus, Chicken Wings. This is the largest category in fried chicken category, and this category has always been dominated by our brand. In addition to our existing offering of fried and roasted wings last month, we launched a new product called Crackling Golden Chicken Wings, adopting brand-new processes, and it's a Chinese style chicken wing. This is very popular among the consumers. It's sold out within 1 week. And on November 11, we rebuilt this product back to our menu, and we're considering making it a long line product for us. So now we aim to hit RMB 10 billion in these 3 wing products. So the third aspect is to continuously enrich our offerings. So on this year, the mid-autumn festival, we actually launched the Golden Moon Burger. This is to boost our sales in the festival occasion. So the response was great. So next year, we will continue to explore holiday theme, the food and marketing to drive a seasonal business. On top of that, we also have another big project called [ carbohydrate ] staple stable food. So I will talk more about that shortly. So the second key aspect of our core is the cost performance. And we also have 3 major directions. First is IP-oriented value for money offers, beyond the discounts and good taste. They have to offer emotional value. So for example, we have Crazy Thursday feather duster activity and also the [ crazy day Super 13 combo], they all performed very well. And the second is we want to build the [ solo ] dining brand mindset. So [ 3 -- ] we started with RMB 19.9, 3 item combo and then have since developed RMB 22.9 and 25.9 solo meal sets miles which have increased both the frequency and average speed. So next year, we will also launch more offerings -- and other is [indiscernible] marketing campaigns. We have examples of 20th anniversary of the egg tart and the 85th anniversary of the original recipe chicken. So these campaigns give marketing a theme that consumers understand very well and we have a good story to tell and driving up the business. So we have actually many moments to celebrate. So going forward, we will leverage these occasions and native business through them. And the channel marketing has become quite complex with the fierce external competition. So for us, on one hand, we need to continue to optimize our commercial areas and also to improve rider costs to improve the delivery efficiency. On the other hand, external platforms are innovating constantly, platforms like Pin Hao Fan and Shen Qiang Shou, the examples that we need to learn from. And internally, our focus is our SuperApp. This year, the battle among the third-party platforms has significantly impacted every brand equity channels. But against the backdrop, our share has increased by 5 percentage points this year. So we'll continue to work hard on this. IP marketing has proven to be a very highly efficient marketing method. It does not cost too much. And also it does not increase our ad resources. And the IP-driven traffic can easily raise business, providing emotional value to our consumers. And in the past 2 years, IP has brought many surprises to us. So in the future, we will strengthen in external collaboration, hoping that we can partner with more global top-tier IPs. At the same time, we need to improve IP marketing efficiency, we'll promote more themed stores to improve efficiency. So just now I talk about the -- what is core at KFC. And now I would like to talk about some incremental opportunities. I think many of you are already very familiar with the KCOFFEE Cafe. Right now, we have over 1,800 stores. Well, by having this [Foreign Language], so we are able to reduce our cost. And the sparkling coffee is a creative product, which is very welcomed by our consumers and the egg tarts, a very good pairing with the coffee. So we have big egg tarts and caramel egg tarts, they sell very well, taking a very good proportion of ourselves. Right now, KCOFFEE has a relatively complete product mix. So going forward, we will invest more in KCOFFEE by opening more stores. so that our consumers can be more familiar with our offerings. We are very confident that by 2029, KCOFFEE will have more than 5,000 stores and we also have 2 milestone goals. Firstly, we want to make sure that we can run our equity KCOFFEE very successful. Second, we want to explore the franchise development model to boost the growth of KCOFFEE. KPRO is a new business we began to do earlier this year. This is a healthy light meal segment. Right now, it is not a huge segment, was around RMB 20 billion. But we believe it has a great potential going forward, especially for brands like KFC, which is primarily known for fried chicken. So over the past 12 months, we have been growing very fast. Right now, we have over 120 stores in more than 20 cities. And we offer, panini and healthy drinks and snacks and energy bowls. Energy bowls are our biggest item. So 7 variants of the energy bowls account for over 50% of our [indiscernible] sales. So we also -- so with the shared operation costs and also the investment in the product, we have full confidence that we can reach over 1,000 stores within 5 years. Drive-through pickup is also another business with a great potential. Before it was constrained by limited road lane resources, so the growth was relatively slow. Over the past year, our team has come up with more innovative ideas and practices. For example, out of the door delivery. So our customers can order online and the employee deliver by working out of the restaurant. This can dramatically improve lane accessibility. So we have also developed the street-side pickup service by using location technology, enabling delivery right to the road side near restaurant. So thanks to these innovations, we have full confidence with more investment next year. We are going to expand this service. So this is the project of [ high carbo -- high carb ] business. So we hope that we can reach more to the low budget, low-income population. So we want to target, for example, the riders, the taxi drivers and the university students, we have already got to the products already. So [indiscernible] a month ago, we actually ran in competition, creative competition on the stable food. For example, the braised [indiscernible] chicken rice and pork tomato rice during the competition, and we also have local stable food like [indiscernible] noodles are also very impressive offerings. So we have a lot of confidence that we're going to launch this to the market and the emerging channels like [indiscernible] is gaining popularity. So we will also work with a third-party platform by offering riders meal or drivers meal to reach the cost-conscious groups. And also for the universities, we want to put our offerings on the investing in the campaigns so that we can reach university students. We have great expectation in this category next year. And right now, building the resilience of our brand focuses on ensuring a healthy cost structure and operation efficiency with 4 key areas of our effort. First is to streamline and improve efficiency across products, raw materials, packaging and so on. Second, we want to centralize our work in a more efficient way. Right now, we already have made office for recruitment, training and the new store openings. Now we are testing a centralized ordering and scheduling platform as well as to more outsourcing and the factory-based initiatives to reduce pressure on restaurants and raise efficiency, certainly shared empowerment. In recent years, the brand has actually done a lot of experiments, and we have a lot of lessons learned. For example, the labor service sharing via [ Mega ] and also product sharing for items like original recipe chicken and also share the location resources like [indiscernible] stores. So these have proven to be very efficient business models. We believe that within the brand or across the group, we have more opportunities for improvement firstly, technology employment. Emerging new technologies have made innovation possible in the traditional front store, back end management model. While engineering stability, we will explore more [ future vision ] facing restaurant management models gradually shifting goods management and the personal management out of the store so that the restaurant can focus more and more on serving our customers while using human machine collaboration to boost production efficiency and using AI to improve decision-making efficiency, we will continuously build a more efficient technology-driven operational model for the brand. Now let's talk about the mode. The brand has over 500 million members. So it is very difficult to be [ completed ] by our competition. Through a carefully designed membership system, we have clearly mapped out membership growth path from regular members to paid members all the way to the top. So this tiered approach maximizes member value. Right now, we have over 1 million members at the top level and averaging 100 visits per year, demonstrating their strategic role as the foundation of our competitive advantage. And also, we have got more and more clear consumer profiles. We understand their spending habits, behavior characteristics and how they engage with media. This enables us to recommend the right products to the right consumers. So improving our marketing efficiency, also has a positive impact on our brand strategy. and high-quality customer service and RGM #1 culture part of our moat, we use a platform serving with [ compassion 2.0 and RGM voice ] to listen in real-time ideas and suggestions from our consumers and frontline staff and to act quickly to solve the issues or problems they have. So we're also built in concessions from our family, the [ sepocultural ] platform, making such good behavior, making sure a good behavior is being seen and rewarded. In customer service and restaurant support with our culture simply doing the simple thing again. So KFC China has brought together generations of people and efforts of hundreds of thousands of employees. We hope that we always remain a leading brand in China's catering industry. So we want to realize through 3 [indiscernible]. First is for rebates. This is our solemn promise to our consumers. Second is we want to be present, be with our customers all the time. We want to open more stores to make KFC accessible by maintaining good cost performance, we will make our product and service affordable. And over last -- so we put respectively, and we serve our customers passionately with care. And we believe that united culture will inspire us to go further. So going forward, we will continue to move forward with this culture. Once again, thank you sincerely for your great support and the trust in the KFC brand. Now let me pass the mic to Jeff, General Manager of Pizza Hut. [Presentation]

Good morning, everyone. Welcome to today's Yum investor conference. So I'm very happy to see you again here in Shenzen. I'm Jeff Kuai, the General Manager of [indiscernible] China. So in the next 30 minutes, I will share with you 3 topics. First is the accomplishments we have achieved. And the second is based on the segment and the price range -- so the growth opportunities and the potential. Finally, I will share with you how we are going to seize the opportunities and our growth goals in the coming years. First of all, we're very happy to share with you that this year, we opened Pizza Huts 4,000 stores [indiscernible]. So took us 33 years from [indiscernible] in 1990 to reach 3,000 stores by 2023, but we added the next 1,000 stores in just over 2 years. As our store count accelerates the quality of our new stores continue to improve compared with the 2019 payback period for our new stores has social turned from around 3 years 2 to 3 years. So in terms of our sales, for the first 3 quarters of this year, our same-store sales have maintained a solid growth. What is even more encouraging that with our brand development strategy, our same-store traffic has continued to grow strongly. In the first 3 quarters, same-store traffic year-over-year. And as of Q3 this year, we have a positive same-store traffic growth in overall [indiscernible]. While we deliver better products, better value for money and better customer experience, we also managed to improve operational efficiency continuously. Compared to 2019, restaurant margin in 2024 has improved by approximately 90 basis points. Building on that, in the first 3 quarters of this year, margin has improved by another 90 basis points. As a result, in the first 3 quarters of this year, operating profit increased by 16% year-on-year. In this highly competitive market. Pizza Hut has achieved simultaneous improvement across multiple dimensions, same-store sales and profit margin. So what's behind Pizza Hut's sustained growth through cycles? First, we have an effective team that's fought and won tough battles and has been honed through years of collaboration. From frontline staff to headquarter, this effective team allows us to respond swiftly to market changes and challenges formulate the most effective strategies continuously innovate and improve efficiency, seize opportunities and maintain growth. Second, our brand strength. Pizza Hut is recognized by consumers as their favorite Western casual dining restaurant brand in China. Over the past few years, customer recognition of Pizza Huts, taste, flavor and value we value for money has continued to grow. This trust and endorsement from our customers form our strongest moat, supporting the brand's rapid development. Third, our product strength. We hold a leading position in multiple categories. These strong categories have given us a significant competitive advantage and have driven overall brand growth and market share expansion. Among them, the most important categories, of course, the pizza category, which has achieved rapid growth through continuous innovation. We expect our total pizza sales this year to exceed 200 million units. What does that mean? This means that we are doubling the sales compared to 2022. Finally, our store network spreading across China, along with strong capabilities in off-premise channels and digital. Our off-premise sales includes both delivery and takeout. This has consistently outpaced overall system growth. In Q3 of this year, these 2 channels together accounted for more than 50% of system sales. And our member base has also been growing rapidly and has surpassed the $200 million mark. These digital channels and systems provide tremendous convenience for customers, while also enables the brand to reach them more effectively forming a key source of long-term competitive advantage. Our team, brand, products, omnichannel presence and member system have enabled us to successfully navigate multiple business cycles. They also constitute the critical foundation for the brand to achieve further breakthroughs and accelerate growth in the future. Of course, another critical condition for accelerated growth is whether the market still has potential. At present, there are still abundant opportunities in the market. First, pizza category still has robust growth momentum. According to [ Euromonitor], between 2025 and 2029, the Chinese pizza market is projected to grow at a CAGR of 10%, significantly outpacing the overall restaurant industry. Second, in terms of categories, Pizza Hut has already established a second growth curve beyond pizza and into the bagger category. Since we first launched burgers in April last year, our burger business has grown rapidly and contributed meaningfully to the brand's overall growth. The addressable market of the burger category is much larger than that of pizza. Although competition is intense, Pizza Hut has firmly established itself through a differentiated positioning of CDR quality burger. Consumers highly appreciate our freshly baked burger bonds made daily, generously sized whole meat parties make-to-order preparation and approachable pricing. As a result, repeat purchase rates for this category are significantly higher than the overall average. Third, we still have significant growth opportunities to cover more price ranges. In 2019, our average per person order size was around RMB 60 higher than 98% of snack and QSR brands. The market size of this price bracket is not enough to support rapid growth for Pizza Hut. As a result, in the years prior to 2019, we faced challenging same-store sales performance and net new builds declined sharply. Thanks to the efforts over the past few years, we significantly adjusted our order size and now our price positioning has settled into a more reasonable range. We still have room to move further down the price leader, but even at our current price point, the segment is already large enough to support accelerated growth. Finally, due to adjustments and enhance the value for money proposition. We now have a better opportunity to enter nearly 3,500 previously unpenetrated cities and towns across China. We can also expand to new occasions such as solar dining. We can also reach younger and value-conscious, value-sensitive customer groups. In a nutshell, we have expanded categories adjusted price positioning and improved value for money, getting ready to broaden our coverage across price ranges, cities, occasions and customers. All right. That's enough storytelling. We now possess both the capability and opportunities for accelerated growth. So what exactly is our future growth target? [ Joey ] already alluded to this, our goal is to grow by another Pizza Hut in the next 5 years. That is to say, to double our operating profit by 2029 compared to 2024. This is the first year of our 5-year plan. So far, we are right on track to reaching that goal. As Joey already alluded to, our RGM 3.0 strategy is the way towards this 5-year target. Next, I'll talk about our growth strategy, resilience and multi. First, I'll talk about our growth strategy, involving both new store openings and same-store growth. And second, regarding resilience, I'll mainly talk about how we plan to improve store profit margin. Last I'll share a few things about reinforcing our moat through in-store customer service and our people first culture. In the next few years, we will increase annual net new build from 400 or 450 to over 600 per year. By 2028, our total store count is expected to exceed 6,000. As we accelerate new store openings, we will not compromise on quality and ensure a 2 to 3 year new store payback period. We will focus on 4 levers to accelerate new store development. in high-tier cities, we will increase store density with flexible formats. In cities where we have already established presence we will continue to optimize store assets. For the 3,500 low-tier cities and small towns that we have not yet entered, we will penetrate with the [ GEMINI ] and WOW model. Finally, we will accelerate our franchise business and rely on franchisees to help us reach previously unpenetrated locations, such as tourist attractions and schools or areas where they boast higher operational efficiency, like remote areas and some small towns. So first, let me elaborate on the store formats. Whether it's increasing high-tier density or penetrating lower-tier cities, our primary focus is on creating more efficient store formats. To enable shorter payback period, lower investment upfront and higher same-store sales. In high-tier cities, we operate in 2 formats. The classic format leans more towards dining customer experience with certain off-premise volume whereas satellite stores focused primarily on delivery. Over the past period, we've significantly reduced the investment required for satellite stores and found ways to lower investment upfront for the classic stores as well. Moving forward, we can leverage these 2 formats to open more profitable stores in high-tier cities. For lower-tier cities, on the other hand, the [ PH WOW ] format introduced last year has proven highly effective, compared to high tiers. For the WOW model, pricing is adjusted from [indiscernible] pricing to everyday low pricing, better aligning with the spending habits of small town residents. Service model is also upgraded to be closer to QSR model, enhancing peak time service capability. Additionally, the investment required per store is down by nearly 50%, and now for [ WOW model ], in lower tier cities, upfront investment is between 600,000 to 800,000. With that, the PH format has a greater chance to succeed in smaller cities. We have already opened more than 40 new Pizza Hut WOW stores in low-tier cities. So far, the initial performance in terms of CapEx, [ WPSA ] profit margin and payback period, the performance is in line with our expectations. At the same time, we have invited a select franchisees to pilot this format in small towns. On the right-hand side, you can see some prices. This is to give you a sense of the product offered at [ WildStar]. And in the afternoon, you will also visit some of our [ WOW ] stores to better understand what is like to open a [ wow ] store, what's our price, what's our service in the [ Wildstores ]. For the existing 4,000 stores, we will continue making adjustments and upgrades. First, we will leverage AI for zero-based network planning by analyzing demographic distribution and the mobility patterns of individual cities. Guided by this blueprint, we will retain high-performing stores and relocate or close underperforming ones. At the same time, we will upgrade store facade and outdoor areas annually to enhance brand image. So I've talked about new openings. Now let's shift to sales. In terms of sales, our goal is to sustain high single-digit [ SSSG ] annually. Our strategy will focus on 2 pillars: strengthening the call and expanding adjacencies. First, reinforcing our core business. We will continue to improve in family and group dining occasions. Enhance products and value for money, optimize our delivery channels, continue to expand our price range, further penetrate low-tier cities, et cetera. To capture greater market share, at the same time, we will continue to expand into adjacent areas. We will innovate and scale adjacent opportunities, including developing the burger category catering to solar dining occasions, strengthening takeout channels and further engaging with younger consumer groups. So I will elaborate on the core and adjacencies, respectively. To enhance our core, the most crucial aspect is continuously enhancing our product strength. And first, we must strengthen our leadership in the pizza category. Over the past few years, the pizza category has been a critical growth enabler for overall brand sales. In the first 3 quarters of this year, pizza sales increased by over 24%. Underpinning this growth is constant innovation particularly in pizza crust. In August this year, we launched the 10-inch handmade think across the pizza series, which has since become the best seller. Customer feedback and the repeat purchase rate for the thin crust series is higher than those for the entire pizza category, coupled with the hand hospices introduced in 2022, innovative crusts now account for over 70% of total sales. Going forward, most of our pizza innovations will focus on developing new crusts. Second, we will continue to strengthen classic pizza flavors such as Super Supreme and New Orleans. So these existing [ HERO ] products will be further strengthened. At the same time, we will create new hit flavors. Like the [indiscernible] pizza, they're also very popular. Lastly, we will expand our value offerings priced at RMB 39 and RMB 49 to increase market share across different segments. Another key approach to enhancing product strength is continuous product focus, creating [ hero ] products and new hits. Over the past few years, we have streamlined our menu reducing the number of long-term products from 105 to fewer than 80. So individual product efficiency is significantly improved. During this process, we focused on creating hero products, like Bolognese Pasta and [indiscernible] Pizza, high repeat purchase items have seen growing sales. At the same time, we continue to introduce new hits such as the secret recipe chicken thigh burger Barker and Korean fried chicken, driving overall sales. The second approach to strengthening our core is improving brand value for money, focusing on 2 things here as well. First, enhancing the value of long-term menu items, not only have we maintained prices without any increase for [ ATS], but in December, Q4 last year, while preserving healthy profit, we even made significant price cuts which proved highly effective. Since Q4 of last year, same-store traffic has been steadily rising. In the first 3 quarters of this year, same-store [ TC ] grew by 17 percentage points. Moving forward, we will aim to stabilize average [ TA ] and introduce highly competitive value for many products at higher price points to drive both [ TC ] and [ TA ] growth. Second, strengthening signature value platforms. This year, we -- this year, we upgraded [ screen ] Wednesday, offering customers more predictable promotions, which has shown promising results. We plan to upgrade other value platforms using similar strategies. Our long-term goal is to strengthen these value platforms and to enhance customer trust and promotional effectiveness. Third lever, delivery remains our most important growth engine. In the first 3 quarters of this year, delivery has been performing very well. Sales grew by 27%. We outperformed the system sales. Going forward, we'll continue to drive delivery growth. So we'll focus on enhancing the taste of delivered food will engage platform riders to effectively improve delivery efficiency and speed, we will optimize algorithms to increase conversion rates on public domain traffic. And finally, we will strengthen our own channel with exclusive benefits, mechanisms and campaigns to accelerate growth in our proprietary delivery channel. The final piece of the puzzle is to enhance our digital capabilities. Over the recent period, our membership base has continued to grow rapidly and driven by the full menu promotion, our new member acquisition has significantly outpaced that of last year. Looking ahead, we will use CRM program and privilege membership costs to increase repeat purchase frequency. At the same time, we will enhance private domain traffic and drive users to our own app and mini program by providing more attractive benefits, exclusive discounts and improve the customer experience. So having covered the core business, we now turn to the adjacencies. We are pursuing 4 key levers to expand adjacencies. First, newly launched burger category. Product-wise, we will focus specifically on beef burgers. In marketing, we will highlight our positioning as make-to-order CDR quality. Through various [ LTOs ] and promotional campaigns. We aim to raise awareness that Pizza Hut offers high-quality burgers. Second is solo dining. Actually, this is a segment also went up by 25% in the first 3 quarters. So going forward, we will also promote our solo dining IP to offer more -- a good value for money product combinations. So as to continuously improve the [indiscernible] meal experience in both dining and the delivery channels to drive more sales. Third lever is our takeout business. So going forward, we want to further improve our brand awareness and speed of food preparation and the delivery. Lastly is IP co-branding. In recent years, we actually have collaborated with more than 20 different IPs annually, bringing emotional value to our customers and also drawing new customers. In the future, we will continue to collaborate with IPs that are popular with our family customers. And we will also look to have a more diverse co-branding with gaming animation and other IPs. So having discussed our sales. I would like to talk about how to improve our store profitability to make our business more resilient. So now we have the sales. We want to make sure that the stores are profitable so that we can contribute to the competitiveness of Yum China. So our target is to grow brand gross profit by more than 75% compared to 2024. So as to double it by year 2. Correspondingly, we aim to improve store level margin by about 250 basis points by 2028. So while boosting the profitability of our brand and restaurants will also look to widen our moat by continuously enhancing the customer experience and satisfaction. For us, the most important lever to increase restaurant margin is to improve labor productivity. So we will do this through 4 aspects. First, is to simplify or streamline our menu preparation steps of each product and the restaurant management tasks. So for task that cannot be simplified further. We will try to use automated equipment system to help. And for tasks that cannot be simplified or automated. I will try to centralize them via our mid office to improve overall efficiency. For example, we have already launched a centralized recruiting and the training mid office. Our store managers, you longer need to work about hiring and training, they can free up more time to take care of our customers. Going forward, we can also do as for example, the centralized scheduling, training, et cetera. And we will continue to also our front-line incentive plans, so that our productive employees can more than encouraging productivity and to have a better retention of our good employees. So in terms of customer experience, on top of overall satisfaction, we pay special attention to product quality and speed of delivery. So over the past few years, we have made continuous improvement in all these areas related to customer experience. Going forward, we're further to stabilize new product quality, especially for pizza. We have also launched our AI quality inspection system with image regulation technology. We are able to attract the quality of every pizza. And based on this data, we will also do targeted training and process improvement for our employees. So will continue to improve speed of service. With our [indiscernible] system, we can do real-time inventory calculation and come up with the best solution. And leveraging on the latest [indiscernible], we continue to optimize algorithm to boost production capacity and the delivery speed during peak hours. In addition, and we will further improve the overall satisfaction by enhancing learning environment and [indiscernible] service. Finally, to execute our RGM 3.0 strategy, the most important enablers are each RGM and also our organizational culture. We have launched an [ RGM 3.0 ] system to collect suggestions and the problems from every RGM and provide timely feedback. Whereas the [ top ] of AI, we ensure that every [ RGMsvoice ] can be cut quickly and their concerns addressed properly. Regarding customers, we have hold [indiscernible] customers with a culture. We also have a system to collect customer feedback from multiple channels and to respond in a timely manner and to of the issues to serve every customer well. So ruling on team capability, brass,product strength and a strong network we have navigated cycles repeatedly and ready to accelerate growth. The pizza and the burger credit [indiscernible] with a new price range and lower tier markets and also the dining situation, we have a couple of huge market space to accelerate growth. We are very confident that can build Pizza Hut into the most innovative pizza brand in the world to build Pizza Hut with another Pizza Hut in 5 years. Thank you. Now let's welcome Maggie Chen our Chief Customer Officer and the General Manager of Lavazza to share with you the [indiscernible].

Thanks, Jeff. Good morning, everyone. I think this morning, everybody already enjoyed the first cup of Lavazza. Maggie Chen as a new role of General Manager of Lavazza JV. Today, I'm really excited to share the most legacy Italian coffee brand, Lavazza and its progress in China market. Let's start with a short video to understand the essence of the brand. [Presentation]

Yes, detail, tradition and excellence show brands never changing attitude of 100 years. Lavazza was founded in 1895, inventor of blend and the hometown of espresso. Over the years, Lavazza has became the Italian flavored brand around the world. What brings us here is a perfect espresso. It is the heart of tradition and the moment of coffee pleasure. Every single cup starts with the same uncompromised espresso, strong flavor, rich creamer and smooth foam. And in China market, we are trying to connect the authentic Italian [indiscernible], not just the detail in every cup, not just tradition in every menu innovation, but also a very exciting life moment. We have been refining this brand in the past 5 years to find out a right but still unique Lavazza for China. As [ Joey ] mentioned, it takes years for bamboo to grow its root system beneath the soil. Once the root are solid, we believe bamboo should up at a very fast speed. We truly believe we will be one of the bamboos in Yum China. Actually, we started to build our own rule system 5 years ago and passed through a dynamic [indiscernible] market environment and consumer habits. We will continue to evolve the brand and 2025 marks a tipping point. We are happily Lavazza has finally find its growth path, and there are some positive signal after Chinese New Year. By quarter 3, we had 118 stores. Our coffee shop business showed strong month-over-month momentum. SSG rebounded to 111, and we've seen a sustainable trend in the early of quarter 4. At the same time, thanks to the [ live model ] we developed last year, those new format stores achieved restaurant margin around 5.8% in quarter 3. That's a very encouraging result for single-store economy. Therefore, we are confidently moving to a new phase. We will accelerate new store opening. By year-end, our target is to reach 145. Globally, Lavazza is very excellent in the retail business. Last Investor Day, we mentioned our plan to step into the retail market in China. Now it has already become one of 2 the most important growing engines for Lavazza JV. Actually, retail revenue rose 38% year-over-year with an operating margin around 9%. We also know that to drive in China must to adapt. At Yum China, we know how important the local insight is. We are making sure our coffee truly resonates here. China coffee market has been a significant growth in recent years. When we compare consumption level of developed Asian market, we are still at very early stage. This is huge potential. As Chinese consumer drink more and more coffee, many of them will evolve from simply drinking coffee to being coffee drinker. Their taste will naturally upgrade. And if the price is accessible, they will stay with better quality coffee in daily needs. This growing segment for Lavazza is our sweet spot. We believe we are perfectly positioned in their needs, stay true to authentic Italian coffee, while offering localized menu with accessible price. And also, Italian lifestyles, craft, art, passion and love. As the Italian coffee master, we offer diverse coffee bean to meet different preference, from classical Italian blends to single origins and special blends for different seasons and life moments. Actually, more and more Chinese consumers have known and loved our KAFA. Lavazza's iconic KAFA bean. This is a real bean from Ethiopia KAFA forest. It is the birthplace of the first coffee bean. After several years' efforts, now we can offer it every day in China at a very good price. Today, 1 in 5 Lavazza customers will naturally trade up to KAFA bean. The menu mix doubled in past year. Surrounding by KAFA this collection, surrounding with KAFA lovers, we will continue to innovate our KAFA collection. Our recent KAFA Geisha launch achieved the highest repeat rate in the past two years. We will offer more KAFA bean choice and we believe it will further grow our business and our fan base. Blending coffee, much like perfume and wine, is the art of combining different origins to achieve unique balance of aroma and character. As blends inventor, we bring our global blending technical into China. Since last year, we speed up the cycles to offer different seasonal blends, inspired by a lot of emotional moments like tennis celebration. This approach has significantly grown our business and the love base. We plan to double or even triple our blend circles in the future. To win in the market, we know we need signature products. Different from Italy, Chinese consumer more prefer milk-based coffee over black coffee. Our 100% buffalo latte, milk latte, was tailor-made to Chinese consumer and taste, but still with Italian DNA, sweet, ice cream-like texture. We believe in that. Year over year, we promote it. The result is very encouraging. Buffalo milk latte already has been Lavazza's signature item. In the past 12 months, we are so happy to sell over 1.5 million cups. This is 25% of our total beverage. Building this insight, we launched liquid tiramisu coffee this summer. We're transforming a global well-known dessert into a drinkable format, creating a new experience of coffee plus dessert. The product hit the market and became our new blockbuster. And there are a lot of good ideas coming from my team. I think this is not only one. Actually, there are a lot of dessert-inspired beverage will launch in our shop as a daily offer. Lavazza family are big fans of tennis, and more and more Chinese consumers play tennis, watch tennis and dress up during tennis. For us, that's really perfect. Make tennis as a platform to connect, engage with our potential customers. With world #1 player Sinner, Lavazza ambassador and a strong brand activation across all channels. During Shanghai ATP season, we enjoyed 20% sales revenue growth year-on-year. We hope the fast-growing fan base of tennis will be Lavazza lovers as well. Fashion and car racing are the pride of Italy. They also present a certain life attitude, pursued by Lavazza’s core targets. This year, Lamborghini, Moschino campaign proved our approach. We could build connection with our customer within coffee and beyond coffee. China is a famous country of cuisine, so as Italy. Take inspiration from Lavazza's network, with Michelin star chefs and the leveraging Yum China's expertise in localization and standardization, our joint team really delivers high-quality food with simplified equipment and streamlined operation. Good taste and light investment works in Lavazza China. We've introduced over 100 Italian-inspired food items in China. Some like Focaccia and the Toast Dolce have become the must-try favorite items in our menu. Some like the Turin-style pizza and Panettone. They are starting to gain their own lovers. The clear food portfolio has also given us very unique growth pillar to drive our TA on different dayparts, and meanwhile to bring extra sales during holiday. We found Chinese consumer super love a lot of Italian elements. We should better leverage and visualize and strengthen the connection with our potential customers. This summer, we launched the first Italian summer concept in China. We'll present a more comprehensive experience across coffee, drink, retail and gift. The summer sales result is so impressive, as I mentioned earlier. Now we are in Italian winter season, ski season. Actually, we gained a very good start as well. We found all key elements to connect with our core audience and now it's time to match ahead. We all know store model is very critical to speed up. Consumer priorities are dramatically changed in recent years in China. We need to meet the core needs, while becoming more streamlined and getting closer to the customer, in distance and the price. We have continuously adjusted our model. Actually, the first-generation model offers large space, good coffee, light meal, and restaurant-level experience. While this is our third-generation model, it focused more on core needs for specialty coffee. What remains as uncompromised are the quality of coffee, coffee equipment, barista and the Italian design. But for the store size, it has been cut in half and the CapEx optimized to 1/3. The essential model allowed us to open more store and offer accessible price in their daily needs. The latest version requires an investment of less than 0.5 million, almost 1/2 compared with before. With this design, we launched our first store, Pinzun, in Shanghai last June. The promising sales performance and the [ unique ] economy have led us to another 24 stores. These stores have achieved around 6% of restaurant margin in quarter 3, healthy and still growing. Now we are more confident than ever to expand. In the future 3 to 5 years, we will be doubling down our presence in Tier 1 and selected Tier 2, becoming more accessible to coffee lovers and elites. We see potential for each Tier 1 city housing 150 to 200 stores. It gives us thousands in scale. The light format with coffee mastery as its core allowed us to go broader or even go deeper. At current stage, we will more prioritize commercial and office trade zone to increase brand exposure and meet daily needs. We're also testing strategic location like campus, transportation hub, leverage Yum China franchisee resources. To provide a cup of good coffee, we must ensure freshness, innovation and good price, meanwhile, retaining Lavazza's century-old roasting and blending expertise. We are enhancing local capabilities under the support from Lavazza R&D and Yum China supply chain ecosystem. This allowed us to improve our agility to the market, reduce the cost and strengthen our innovative pipeline. We've launched more than 40 products in the past 3 years. So far, close to 30% product is roasted locally and we plan to reach 70% by 2027. In mature market, coffee retail is another huge business. China retail business even grows faster because the user base enlarges. Last Investor Day, we mentioned Lavazza JV was a step into retail market. We set up our local dedicated team work closely with our Italian teams, and gradually shift from 100% global imports to local R&D and production. We've expanded from only bean-based products to capsule, liquid and drip. Some are very Asia-specific format. We have the opportunities to build capability to react to the market like a local player, which gives us confidence to go broader and even go deeper. Meanwhile, we create synergies between shop and retail to offer and promote signature beans across all channels. As I introduced KAFA, now it gets signature sales in both businesses. In just 3 years, we doubled our retail sales, and we see more breakthrough ahead. We are so happy we reconnected with our channel partners. Now you can see more and more Lavazza in premium, up, middle scale hotels. Also, we're already presenting almost all leading key accounts in Tier 1 to Tier 3. This is another very efficient way to build brand awareness. This year we designed to set up our self-run capabilities for online channel. We have very good business result during this 11.11. In terms of GMV, actually, we are top 2 roast and ground coffee brands in e-commerce. My team see more and more opportunities we can do better. We are very excited about that. Our team is in place and fully confident to break the ground. By 2029 will remain our goal: over 1,000 Lavazza stores in China and USD 60 million in retail sales. Lastly, allow me 20 more seconds to send an invitation here. Two weeks ago, we opened our first test store in Hong Kong to better understand Asia customers. The store is located in Central. I believe it’s also the home or office for many of you. Please come and enjoy authentic Lavazza there. More signature and new product will launch, aligned with the pace of Mainland China. Thanks again for your time. Now let's take a short break. Please join us outside for the second Lavazza moment. Thank you.

Thanks, Maggie. We'll now take a short break and give management team a rest. You will have more time to interact with them after all the presentations. So please come back at 11:25. So that's about 10 minutes, 11:25. Our lunch is a bit late today. So make sure you grab something to eat during the break. And following the break, we will have our Chief Technology Officer, Leila Zhang, to discuss our digital strategy. Thank you. 11:25. [Break]

[Interpreted] All right. Welcome back. Good morning, ladies and gentlemen. My name is Leila Zhang. I'm the CTO of Yum China. Earlier today from the presentation by Joey, you saw the bamboo forest in the first half of today's investor event. So I think we have heard a lot of stories about the bamboo forest, the different brands we have. And starting from me, I'll be talking about what's happening underground behind the scenes. You've heard from Joey and the brand general managers that talked about Yum China and we have always considered innovation and digital capability as one of our core competencies. Today it's my great honor to be here and share with you some of our latest initiatives and achievements in intelligence transformation, and also to take you into our future tech development and innovation. So the digitalization of Yum China has happened in tandem with its business growth and always resonates with the company's RGM strategy. In 2013, while we rolled out digital initiatives for customers and stores, we also started constructing data warehouses to accumulate data. By 2019, based on high-quality data, we started building and centralized the AI platform and utilized decision supporting AI capabilities, such as forecasting, optimization and recommendation to accelerate business growth. Starting from 2023, following OpenAI's lead into the era of GenAI with the launch of ChatGPT, we also actively embraced this technology, introducing AI agents to deepen the integration of technology and business. Entering 2025, AI Agent 2.0 began to serve as digital employees, assisting store operations and back-office staff. Throughout the years, we continue to maintain an industry-leading position in applying and utilizing emerging technologies. Currently, Yum China has fully embraced AI, with deep applications across 4 major areas; customers, stores, supply chain and back office. For customers, we provide convenient personalized services for 575 million members. For stores, we continue to improve operational efficiency with end-to-end digitalized product management. For the supply chain, AI enables farm-to-table management to deliver on both food safety and agility. For back office, AI agents have been integrated into various functional workflows to drive efficiency improvements. Next, I will delve into each of these 4 areas. At every touch point of consumer service, AI plays an indispensable role. First, through our consumer insights platform, we can collect and analyze customer feedback within hours after a new product launch, driving rapid product innovation. Our refined operational capabilities allow us to precisely reach over 200 million targeted customers within 24 hours. Communication has become more efficient. The ordering and membership systems are updated weekly for better functions and performance. This helps meet the fast-growing business needs, at the same time also enhances user experience. Then is our AI-aided customer support system, which handles over 150,000 customer interactions daily, with 90% handled by robots, and a satisfaction rate exceeding 90% as well. I'd like to highlight the latest upgrade of the KFC Super App, an AI-powered ordering agent. This incorporates LLM intent recognition on top of AI recommendation capabilities, making ordering more convenient. Here's a demo to show you how it works. So the user says, "Help me order a set combo." And I'll change a specific item. I'll also change the beverage. Make the payment. All right. We're now promoting this AI-assisted ordering system. Nearly 500,000 customers have tried it. We also welcome you to try it out, and your feedback is very welcome. Every piece of input helps us improve our agent capabilities. Regarding store operations, we have implemented end-to-end digitalized product management. For example, the automated replenishment system covers most items. The AI suggests and RGM confirms. This enhances efficiency and also ensures flexibility for store-level decision-making. With the Smart Stocktaking system, AI generates store-tailored checklists to ensure optimal efficiency improvement case by case. The i-Kitchen is an AI-powered real-time production management system. It helps restaurants flexibly manage peak hours and ensures stable quality through image recognition. These AI-powered systems free employees from repetitive tasks, allowing them to focus on serving customers, and this also helps better address food safety. In terms of supply chain, we have achieved full-spectrum intelligence covering food safety, logistics and replenishment. For food safety, we use knowledge graphs to proactively identify and mitigate risks and enhance control efficiency. For logistics, intelligent network planning enables faster and more economical distribution to over 17,000 restaurants nationwide. For replenishment, precise demand forecasting, combined with end-to-end collaborative planning, significantly boosts supply chain responsiveness and agility. All these AI capabilities are supported by a supply chain control tower and data platform that integrate data across core suppliers, logistics and stores, so that AI algorithms can effectively assist decision-making. For the back office, we have established a system integrating structured data with unstructured knowledge, enabling full AI coverage both horizontally and vertically. At its foundation lies digital business systems, constantly generating and accumulating vast data. The middle layer consists of data platforms across different functions so that data can be connected and translated from being inactive resources to becoming usable assets. Currently, we focus on several vertical domains such as finance, human resources and store development to develop and deploy AI agents to improve efficiency across the board. Looking to the future, we will continue developing our AI agent and embrace the Agent 2.0 era. Agent 2.0 represents 3 major upgrades, from being reactive where humans seek AI, to proactive services where AI initiates interaction with humans. From single-agent to multi-agent collaboration. From executing isolated tasks to empowering entire workflow. We believe that Agent 2.0 is not just a technological leap, it's also about reimagining human-AI collaboration. Today I want to use 2 agents. One is the dev agent. Dev is the store operations agent, to show you the future of agentic AI application and how they empower our business in different scenarios. As you know, the selection of store location is the start of restaurant operations. It requires a lot of public domain and private domain data. It also relies on the extensive experience and knowledge of our human employees. We're currently building a Dev Copilot that integrates GenAI and decision support AI, creating an end-to-end intelligent workflow for store development. For example, during site selection, the agent leverages AI algorithms to recommend optimal locations. In contract review, the AI agent pre-screens key items and flags potential risks. With this Dev Copilot, the human development staff can work more efficiently to support rapid store expansion to 20,000 or 30,000 stores. For in-store management, Q-Smart is becoming a reliable digital coworker. So we are now working on a smart agent matrix based on multi-agent collaboration. We have this Q series, centered on Q-Smart. There's also D-Smart for delivery operations and C-Smart for customer service. So these agents work together to support frontline staff. They have various capabilities covering a wide array of functions, and they have four important strengths. First, hands-free natural language interaction to better ensure food safety. Second, real-time sensing and feedback. In case of possible sellout, the agent will send a timely alert and generate a production plan so that emergency situations can be handled timely. Third, highly responsive to employee questions with reference to data and menus anywhere, anytime. And fourth, multi-agent collaboration and a clear division of roles so that each employee is supported by multiple digital coworkers. We launched Q-Smart in June this year. It is now being tested in several pilot stores, with continuous iteration based on frontline feedback. Next year we'll extend it to wider scenarios and also launch the test in more stores. Before I conclude, I want to show you a video on Q-Smart to help you better understand how Q-Smart empowers our store operations. [Presentation]

[Interpreted] Yum China has always believed that digitalization and AI are vital accelerators for the company's development. Looking ahead, we will continue to increase our investment in digital and AI. So for Yum China, AI is not just AI. It also symbolizes accelerated innovation. Thank you very much for your time and for your support. Next, let me have Mr. Huang, Chief Supply Chain Officer, to come onto the stage.

[Interpreted] Thank you. Thank you, Leila. Good morning, everyone. So I'm the second person in charge of what's behind the scenes. So I'm in charge of supply chain management. So I'm very honored to share with you what we have been doing in supply chain. Yum China has a world-class supply chain management system. Our efficient organizational capabilities ensure end-to-end management of all our products, from farm to table. Purchasing the logistics as our core pillar empowering and driving brands growth; R&D acts as an accelerator, fueling continuous product innovation; and then food safety serves as a stabilizer. So food safety and sustainability have always been at the heart of what we do. We consistently prioritize food safety as our top priority, as our long-term goal is to build a responsible supply chain ecosystem. On the business side, through our integrated procurement across multiple departments, we bring competitively advantageous products to the market. On the logistics side, relying on warehouse and distribution network that covers over 5,000 cities and towns. We ensure efficient product delivery, so giving strong support for our brand expansion to remote and lower-tier regions. Our coordinated procurement strategy has enabled us to maintain effective cost control over the years. By building a supplier ecosystem, using pricing strategies and fostering local innovation with suppliers, we have achieved our strategic goal of being best-in-class, best-in-cost in recent years. And the cost-of-sales ratio of our products has remained stable or even declined. For example, our core raw material, the bone-in piece chicken, remains among the most competitive in the market year after year. Our dynamic pricing management strategy helps us to closely monitor and respond to market trends. For example, crayfish is a core ingredient for our crayfish series products, and its price is influenced by demand, farming volume, weather and water quality. Over the past few years, we have tracked this data and adopted a dynamic coordination, timely purchasing strategy at each relatively low price point. During the harvest season, we swiftly lock in procurement volume and price. This gives us a competitive edge, enabling us to launch additional crayfish-related offerings. Another key ingredient is durian. To ensure a stable supply and avoid multiple markups along the value chain, we launched upstream direct sourcing in Vietnam and Thailand. By doing so, we maintain a closer connection with upstream producers, securing supply while greatly reducing procurement costs. Price locking is also another critical lever in our pricing strategy. Take coffee beans as an example. Our specialized team continuously monitors the amount in the supply and has developed in-depth know-how across multiple production regions. We signed a big volume and price locking agreement to mitigate the risk of sharp cost increases in coffee beans. And last but not least, in response to deglobalization and tariff risks, we began diversifying supply and promoting domestic alternatives several years ago. For cheese products, we have developed new overseas suppliers as well as local domestic suppliers. With joint technological innovation with the domestic suppliers, we have become the first restaurant company in China to use domestically produced mozzarella cheese. In addition, in 2024, we launched a global supplier recruitment platform, transforming our supplier engagement from a one-way selection process to interaction between us and the suppliers. This gives many small and medium-sized suppliers more opportunity to proactively introduce themselves and get chosen to Yum China. It has also helped us to build a healthy supplier pool. And in recent years, Yum China has also actively expanded its global supply chain resources and engagement opportunities. In 2024, we have participated in China International Supply Chain Expo organized by CCPIT, where we can interact with international suppliers. In September 2024, we also attended the Procurement and Supply Chain Live Summit in London, promoting our supply chain experience to a global audience. Our internal innovation in processes is also helping us optimize procurement strategy. Over the past few years, we have also refined our existing product launch mechanism, upgrading from a linear collaboration model between departments to a multi-level, 2-way model. This adjustment allows us to capture consumer trends from multiple dimensions, facilitate cross-departmental information exchange and coordinate supplier resources. As a result, our product development mechanism has become more flexible, accelerating the speed of launching new items, and we are also able to bring new products to the market that are faster, more affordable, better and bursting with potential. So in the past 3 years, we have launched more than 1,600 new products. In the past 12 months, over 100 of our products have surpassed RMB 100 million in sales. And considering the product needs of our brands, we are exploring broader, full material utilization from raw material sourcing to product design, creating a complementary closed-loop system. Guided by consumer insights, we match ingredients of different specifications and parts with brands [indiscernible] brands optimally place them on brands' menus. And we have successfully put together a whole chicken from various resources of suppliers and we hope that moving forward we can put together a whole cow, 1 truckload and 1 logistics and warehouse distribution network by working with various partners. The strong logistics and the warehousing distribution network as another pillar of our moat is also the foundation of our confidence to continue to expand our brand footprint. To strengthen supply chain efficiency, we are continuously advancing the logistics business flow projects, starting with cutting distribution centers, we are evolving into a 3-in-1 model that integrates distribution, fresh vegetable facilities and bread factories. Ultimately, we plan to build a Yum China supply chain industrial park that aggregates distribution, packaging, food production equipment and more. By leveraging synergy, we will not only drastically reduce delivery costs, but also deliver -- achieve highly coordinated effect. We expect Yum China's first 3-in-1 industrial park to be completed and operational in Datong by the end of 2026. Other projects are also under development, including a 3-in-1 facility in Jinan, Shanghai and Harbin, as well as supply chain industrial parks in Guangzhou and Zhangjiagang. Furthermore, we are piloting a hybrid warehousing delivery network to improve delivery efficiency in remote areas to reduce logistics costs. While ensuring food safety, we are introducing third-party resources and then partnering with companies that have a wider network coverage to reduce the cost and to improve the coverage. And of course, logistics automation is the foundation for innovation efficiency. Two years ago in Xi'an, you may have seen our narrow-aisle, 4-direction vehicle and goods-to-person projects. These have already produced great results, increasing warehouse space by over 35% and operational efficiency by over 50%. Building on that, we have established narrow-aisle 4-direction vehicle system in the frozen warehouse of Nanxiang Shanghai, a leading player in this industry. Going forward, we will further upgrade by combining 4-direction wheels with AGV goods-to-person system, enabling multi-level picking inside the warehouse to manual operation. At the same time, we are actively testing autonomous trucks and robotic dog freight movers. Now let's take a look at the VCR footage of our supply chain automation. [Presentation]

[Interpreted] Okay. Welcome back. Now let's take a look into the foundation of resilience. We understand in terms of supply chain, managing food safety upstream, with the upstream of -- upstream, it's extremely complex and tedious. We are leveraging AI to increase efficiency in our day-to-day management. We have developed cloud inspection plus AI diagnostics to trace back to the most challenging and complex areas, the field themselves. On the store side, we use OEC plus AI to automatically monitor and standardize sanitation in key areas such as employee hygiene, equipment maintenance, restaurant cleanliness, preventing cross-contamination and cultivating long-term food safety habits. In Pizza Hut, we have launched the AI quality inspection, which is trained with a massive pizza data to ensure every pizza delivered to customers meets our quality standards. As Zhang Leila mentioned, our facilities system is moving from end-to-end control to the AI agent era, supporting the rapid expansion of our brands and our franchise business. So the ultimate goal of our supply chain is sustainable development. YUM is committed to building a responsible ecosystem. As shown, our achievements have far surpassed expectations. We have also received multiple recognitions. But that's not the end. Continuously having green development together with our upstream and downstream industry partners is our long-term mission. Here I would like to highlight several key milestones. In the past 2 years, we have expanded our coffee grounds recycling to 8,700 KFC stores, collecting over 3,000 tons of used grounds. In the first phase, we've transformed these grounds into eco-friendly plates, baskets and straws in the stores. In the second phase, we optimized the process to produce logistics pallets and activated carbon filters, which we plan to use in our restaurants and warehouses. We also encourage our beef suppliers to add a specific bioenzymes in feed to reduce emissions of ammonia, improving feed-to-meat efficiency and lower carbon impact. At the same time, we have also asked the potato suppliers to reuse potato peels as fertilizer, thereby reducing environmental pollution. Additionally, we're encouraging inter-cropping of potatoes and oats across the 3 seasons, which helps preserve soil health while increasing potato yield. Balancing nutrition and health is also part of our commitment. In response to China's Healthy China 2030 Plan and the National Nutrition Plan 2017 to 2030, we're continuously improving our existing product formulas, launching more low-salt, low-sugar innovative items such as reduced salt mozzarella, French fries, sugar-free cola and sugar-reduced fruit juice. We have also previously announced our sugar and salt reduction goals through 2023 and are steadily making progress. Based on current average progress, we expect to overachieve our 2025 targets. Building on that, our ultimate goal for 2030 while ensuring flavor and customer experience may even be attained ahead of our schedule. Finally, we will drive continuous efficiency and innovate, strengthen the resilience of our supply chain and deepening our moat, working hard with our partners to build a responsible and sustainable green supply chain that empowers our brands to reach new heights. Thank you. Now, please join me in welcoming our Chief Human Resource Officer, Mr. Ding Shiyan.

Thank you, Duoduo. It's a pleasure to be here today with you. I'm Jerry Ding, Chief People Officer of Yum China. Today we have shared much about our RGM 3.0, our business strategy on the surface, right? Now I would like to bring the focus beneath the surface, to people, our strong foundation. At Yum China, you hear this a lot of times today, we say RGM #1. RGM means Restaurant General Manager. They are the ones who keep our restaurant running smoothly every day, lead our teams and bring our brand culture to life for customers. Over the past 12 months, our RGM turnover rate was only 8.3%, with an average tenure of nearly 12 years, reflecting our long-term commitment to caring for and to enable our people. We care deeply about our RGMs and have built a comprehensive benefit framework to support them. Beyond our core benefits such as medical insurance, we offer supplementary benefits, including upgrade medical coverage of up to RMB 1 million for RGMs and their families. These benefits also extend to our restaurant management team. Our care program also extends beyond that. Early this year, we launched a flexible benefit program, offering over 20,000 restaurant crew members comprehensive, accessible and affordable health coverage options. Behind these benefits are real stories. We have an RGM whose father was able to get lifesaving heart surgery through our family protection plan. We also have an RGM whose cancer treatment expense was fully covered by our medical insurance. But RGM #1 is more than just providing benefits. It is about empowering them. Today, our centralized recruitment and training platform now fulfills approximately 89% of our restaurant crew hiring needs. RGMs no longer need to spend long hours sourcing CVs. Instead, they submit a request and a fully-trained team member arrive at the store within only 1 to 2 weeks. With our centralized new-store-opening platform, tasks that used to take RGMs months of preparation are now being handled by our shared service. On average, this saves an RGM around 100 working hours per new store opening. And we know that it is important to listen to their voice and recognize their achievements. Through our RGM voice platform, we continuously gather frontline feedback, response around the clock and close the loop with timely resolutions. We are also delighted to share that more than 90% of KFC restaurant employee have been recognized and rewarded through our K-Bean program. Once centralized, AI could play a critical role in transforming how we manage people in our stores. AI supports every stage, right, from resume screening to e-onboarding, to a 24/7 AI chat bot that handles almost 80% of restaurant teams' inquiries. This does not stop at hiring and training. The platform also brings staff scheduling, performance and career development together into one seamless end-to-end process. With this system in place, employees have a clear view of their training, pay, recognition and growth opportunities, so they can take charge of their own development. And for RGMs, these digital tools also free up time to focus on what truly matters: food safety, customer service and developing their teams. One of our most important initiatives this year is the Mega RGM. Today we have almost half of all our RGMs are Mega RGMs. Rather than manage a single store, Mega RGM oversees 2 to 4 stores with their management team, leading a total of 60 to 90 staff. The model tackles 3 key frontline challenges. First, it helps fuel the RGM talent pipeline that we need to fuel the rapid store expansion. Second, it creates diverse and attractive career pathways for our frontline employees. And third, it enhances workforce efficiency so our team can deliver at their best. But we are not simply asking RGM to do more. We are helping them, helping them work smarter. And the results speak for themselves, right? Mega RGM retention is strong. Turnover last year was only 5.1%, well below the overall average. So why is this a good job? People always joke that an ideal job is about [Foreign Language]. Higher pay, greater impact and more accessible. In this case, it is true. Higher pay. Mega RGM earn 20% to 30% more, and top performers see an increase up to 50%. Pay is linked to the store managed and the bonuses are tied to the sales. Greater impact. Centralization and the digital tools have reduced the routine tasks, helping Mega RGMs lead multiple stores and focus on operations and team development. More accessible. This may sound counterintuitive, but with technology, Mega RGMs can monitor the store remotely even if they are not on site. Our one system store management tool reduces unnecessary commute across stores by providing real-time operation data and automating routine tasks. Rather than just hear from me, we invite one of our Mega RGM, Deng Weiwei, to share his firsthand perspective from the frontline. [Presentation]

We have already thousands of our Mega RGMs, like we just showed. But our mission is far from complete. We will continue to strengthen frontline enablement by, first, consolidating resources to build a one-stop service center. Second, drive franchising business by sharing operational house and providing flexible talent support. And third, strengthen our frontline teams and culture to support the growth of new modules and initiatives. To help our team focus on what matters most, we are now building 5 centralized platforms. We have now covered new store opening platform and end-to-end employee management. The other 3 are the customer support center, a dedicated team to help RGMs deliver greater customer service, particularly during peak hours. Inventory management: automated tools for smarter ordering, replenishment and stock allocation. Equipment maintenance: predictive maintenance and faster repairs. Together, this platform will make it simpler and focused for RGMs to run their restaurants efficiently. Building on that, we are making it even simpler for RGMs to get support and problems solved by bringing all these restaurant support under one roof, the one-stop service center. Instead of reaching to 8 to 6 different shared service teams, RGM now can have only one single interface. Each RGM's request will be handled by a dedicated case manager for end-to-end accountability. Our closed-loop system ensures clear processes, measurable KPIs and real-time feedback. So we call it [Foreign Language]. Keep simplicity in our restaurant, leave complexity to shared service. With the integrated system, that has become a reality. Let's now talk about how we enable franchising as a strategic growth driver. So at the market level now, we have dedicated operation teams and development teams, together with our franchisees who work hand-in-hand on site selection and construction. At the restaurant level, we provide qualifications and training standard and share the best practice to build a strong talent system. And of course, on technology side, we give franchises access to our system, our one system store management platform and soon our new one-stop franchise service app. Over the time, we will build a comprehensive franchise platform that supports every stage, from opening to daily operation, giving franchisees the skills to succeed. Last but not least, we are strengthening our frontline leadership to scale our new business models. For example, we inspire our RGMs with role models from our top performers, excite them through engagement programs like the champion challenges that build new skills and elevate their thinking with K-creator camps and RGM forums to help them grow into cross-thought leaders. At the same time, we are deepening our culture. This year, we refreshed our company culture, embracing founder's mentality with truth-seeking pragmatism. Our leadership team regularly visits markets and restaurants to share these values, while RGMs live these values in restaurants. And initiatives like K-Beans and Restaurant Battles bring our culture to life in daily management, inspiring frontline teams to grow. So at Yum China, people first is more than a motto. People are our most valuable asset, and our culture is the soil that helps them grow and thrive. Like bamboo, deeply rooted in the cultural soil, connected by shared value, resilient through every challenge, and always growing upward and growing wide into a forest. This is who we are, and this is how we grow. Thank you. Now, let's welcome our CFO, Adrian Ding.

Good morning, everyone. It's great to see everyone here in Shenzhen today. I'm Adrian Ding, CFO of Yum China. Thank you for joining us today. As Joey and our team have just shared, we're encouraged by the positive momentum in China's consumer sector. Consumer sentiment shows early signs of improvement. And while consumers are rational, they're willing to pay for great quality, taste, value and emotional value. And against this backdrop, we're well-positioned to capture the growth opportunities through the strategic initiatives that we discussed about today. In my session, I'll focus on how we turn these strategies and initiatives into dollars and cents and provide additional color on our latest three-year growth algorithm, linking our strategic plans to financial outlook. As each of my colleagues has emphasized, innovation and operational efficiency are the twin engines that power our value creation algorithm. Today, I'll walk you through how these engines drive measurable results through balanced growth, resilient economics, capital discipline and strong returns. Let me start with our growth algo. We maintain a dual focus approach in driving both system sales and same-store sales growth. Our growth strategy is built on two pillars: footprint expansion, innovation and operational efficiency. So, first, our footprint expansion is anchored by several key drivers: a clear growth runway in the underserved market, a portfolio of flexible store formats and the acceleration unlocked by capital-light franchising. Second, and just as important, we seek to uphold high-performance standards that underpin our growth. And that's why we've also built multiple levers to drive SSSG, even as our base becomes significantly larger. To put this into numbers, we target to deliver mid- to high-single-digit system sales growth from 2026 to 2028 while sustaining a 101 and 102 same-store sales index each year over the same period. We're not expanding simply for scale. We are building a stronger and high-quality store base, as well as supporting infrastructure to position us for long-term success. China continues to present substantial headroom for penetration for our brands. And as Joey has mentioned, our goal is to enter 4,500 cities and towns and to have more than 30,000 stores in China by 2030. By 2028, we expect to bring our brands to approximately 3,700 cities and towns across China, expanding our reach to over half of the country's population, up from around one-third today. And to be able to achieve this, we're accelerating our store network expansion. We ended quarter 3 with over 17,500 stores. And we'll get to 20,000 stores, exactly as we promised, by the end of next year. And in 2028, we aspire to achieve 25,000 stores. And this represents a double-digit net new store CAGR, supported by strong consumer demand for our brands, food services across all city tiers, and of course, our relentless focus on innovation. To capture the significant opportunities here, we've built a portfolio of innovative and flexible store formats, each designed to expand our addressable market and meet diverse consumer needs. We deploy the right store format to the right location, enabling rapid, focused and capital-efficient expansion. So in higher-tier cities, formats like KFC Compact and Pizza Hut Satellite deepen our presence and improve our consumer convenience. And in lower-tier cities, we leverage formats like KFC Small Town, Pizza Hut WOW and KFC and Pizza Hut Gemini to unlock the significant and currently underserved opportunities with much leaner capital expenditure. For example, a KFC Small Town store requests less than 40% of the capital expenditure of a standard store. Looking ahead, innovation remains our core competence while also testing other new initiatives and concepts that, if scaled successfully, could add further upside to our outlook. We look forward to sharing more with you as they evolve. Together, these store formats allow us to expand faster and better serve the different needs of our consumers here in China. Now, let's turn to franchising. Franchising is a powerful accelerator in our expansion playbook. The capital-light approach enables us to unlock opportunities that were previously beyond our reach, namely in lower-tier cities, remote areas and strategic locations. It helps us capture the incremental demand with both speed and capital efficiency. As of 2025, KFC and Pizza Hut franchise stores represent approximately 13% of our total store count. Between 2026 and 2028, we plan to open more than 3,000 additional franchise stores, raising the total franchise unit mix into the 20% range by 2028. For Pizza Hut in particular, we're raising the net new build franchise mix to increase into 40% to 50%, broadly in line with KFC's level and up from the 20% to 30% today. Our franchise stores typically generate a third to two-thirds of the average sales of our standard equity stores. Given the lower investment and favorable cost structure, the payback for our franchisee stores has been quite healthy. For example, KFC Small Town's payback for our franchisees is 2 to 3 years. Franchise stores are expected to contribute mid-teens percentage to our system sales by 2028. And their share of revenue and operating profit is expected to reach high single-digit percentages. We also expect the OP margin of our franchise businesses to improve to around 10% by 2028. Beyond new store openings, same-store sales growth is an important driver for our overall business. While our expansion plans over the next 3 years are ambitious, we are equally focused on sustaining healthy SSSG. To this end, we have multiple levers in place to drive our SSSG, as both Warton and Jeff have already covered in detail. So I will just highlight a few key points here. Our strong brand equity built over the past 38 years and deep emotional connection with our consumers remain a powerful differentiator. We continue to delight our consumers with innovative and tasty food and drinks at great value. Equally importantly, we offer exceptional convenience, aiming to be whenever and wherever our consumers need us through our super apps, mini apps, aggregator partnerships and extensive store network, as well as the new modules such as KCoffee Cafe and KPRO. All these help us broaden our reach across a wide range of consumer segments and occasions. Over the next 3 years, we expect to drive 100 and 102 same-store sales index year-over-year. And we aspire to reach a same-store sales index of 102 for the Group and for our 2 core brands at some point within the next 3 years. This would effectively bring our SSSG back to the levels seen during the periods of higher GDP growth while operating on a significantly larger footprint today. Beyond our two core brands, speaking of emerging businesses. For Lavazza, the stores opened in the past two years are profitable in quarter 3 this year. And as Maggie has shared, it is on a clear path to 1,000 stores by 2029, while its retail business is progressing towards $60 million of profitable sales. Meanwhile, our other emerging brands, including Huang Ji Huang, Little Sheep, and Taco Bell, are targeting a combined 1,000 stores by 2028, supported by continuously improving store economics. We're disciplined in cultivating our emerging businesses, which are a force contributing to our future growth and success. Now, let's turn to the other two cornerstones of our RGM 3.0 strategy, resilience and moat. These are equally important as growth in driving our long-term success. Our resilience is reflected in the continuously improving margins, driven by structural cost advantages and operational excellence. And our moat, built on core capabilities in areas such as supply chain, digital, and people, is demonstrated by expanding returns on invested capital. Together, these support our strong free cash flow growth. We are targeting an 11.5% plus OP margin and approximately 20% ROIC in 2028 and double-digit CAGR for free cash flow per share growth. These targets quite clearly demonstrate our resilience and moat. We're building a business that grows in scale, profitability, and durability, all at the same time. Resilience starts at the store level. We continue to work on restructuring our cost base and improving our operational efficiencies, and it's paying off. KFC remains our resilient fortress. And consistent with the philosophies and guidance shared over the previous few years, we expect KFC to maintain strong restaurant margins, reaching 17.3% plus in 2028, even as they continue to scale. Pizza Hut has reached an inflection point, and quarter 3 marked the sixth consecutive quarter of year-over-year margin expansion. Thanks to the operational efficiency gains, it is set to reach a higher than 14.5% restaurant margin in 2028. Together, our two core brands are forging a clear path for overall margin expansion, with KFC providing a solid and high-margin foundation and Pizza Hut accelerating its performance, we're targeting a Yum China restaurant margin of 16.7% or higher by 2028. To achieve the restaurant margin expansion, we're actively managing our key cost lines while enhancing productivity across the whole organization. We expect cost of sales to remain at healthy levels, sustaining the benefits from Project Red Eye, spending better and buying better initiatives and favorable commodity prices. As previously guided, our COS in the long term should stay within the range of 31, plus and minus 1%. COL, cost of labor, may see moderate pressure from wage inflation and the rising delivery mix, which we work hard to partially offset with our productivity gains. Occupancy and other costs are expected to trend downward through streamlined operations, better rent and store capital expenditure optimizations. To achieve all this, we've embedded innovation and operational efficiency into every layer of our operation, from streamlining menus to centralizing key processes and deploying digital and AI. These efforts, together with our G&A leverage, strengthen the structural cost advantages and operational resilience, allowing us to navigate dynamic markets while growing margins. As a result, we expect to deliver steady improvement in our OP margin from 10.8% to 10.9% in 2025 to 11.5% or higher in 2028. Solid top-line growth, combined with sustained margin extension, will drive significant increases in our absolute operating profit dollars. We expect high single-digit OP growth CAGR from 2026 to 2028. Our formula is straightforward and proven: growth multiplied by efficiency delivers greater profitability, which is a dynamic with scaling, with precision. Okay. Now let's get to the capital expenditure. We remain disciplined in capital expenditure. We're targeting an average annual CapEx of $600 million to $700 million from 2026 to 2028, with 75% to 85% allocated to store development, including remodels. Per-store investment has been decreasing, as we've disclosed. In addition, we continue to make investments in remodeling, which also includes investment in our side-by-side modules like KCOFFEE Cafe and KPRO. Digital, supply chain, and infrastructure are key and central to driving our growth and efficiency, as well as deepening our moat. These areas are expected to account for the remaining 15% to 25% of our capital expenditure over the next 3 years. Here comes my favorite quote. As Warren Buffet once said, "A truly great business must have an enduring moat that protects excellent return on invested capital." The moat that we've been building and deepening over the past few years, as presented by our management team today, helps us deliver exactly that. Operating profit is climbing. Capital efficiency is improving. And with the incremental growth fueled by capital-light franchising, we expect ROIC to reach around 20% in 2028, up from 2024, which is 16.9%. Our team has walked you through key elements of the RGM 3.0 strategies, and our goal is to turn this execution into strong free cash flow. The key drivers for this are quite clear: solid operating cash flow growth, continuously optimized and disciplined capital expenditure and the value-enhancing approach towards share buyback. Together, this will give us double-digit CAGR for our free cash flow per share growth over 2026 to 2028. And that brings me to a topic that I know is important to many of you: capital returns. As this chart shows, we have significantly stepped up our capital return to shareholders in recent years. We're on track to return approximately $1.5 billion to shareholders each year from 2024 to 2026, or $4.5 billion in total. We expect to end 2026 with and also maintain a sustainable net cash position of $1.2 billion to $1.4 billion going forward. And looking ahead, our current plan for 2027 and beyond is to return our shareholders with around 100% of our free cash flow to the parent company. That is, our total free cash flow after deducting dividends paid to non-controlling interests in our consolidated joint ventures, primarily our KFC JVs, which will be approximately $100 million annually in 2027 and 2028. And this is expected to translate into an average annual return of $900 million to $1 billion plus in 2027 and 2028 and exceeding $1 billion in 2028 and onward. In terms of allocation, we plan to increase our dividend per share over time, with the remainder returned through value-enhancing share buybacks. This approach is designed to balance and meet the diverse needs of our various long-term shareholders. So to bring it all together, here are the key financial targets that will define our path for the next 3 years, and we are excited to share the following: first, a 100 to 102 same-store sales index every year; second, system sales CAGR of mid- to high-single-digit; third, operating profit CAGR of high single digit; fourth, EPS CAGR of double digit; and lastly, free cash flow per share CAGR of double digit. These targets are built on the initiatives that we discussed today. But importantly, our projections do not factor in any macro improvement, nor do they reflect the full potential upside from the new store models and initiatives which we are still developing currently. This outlook reflects our commitment to delivering long-term shareholder value, our confidence in future growth and our discipline in executing our RGM 3.0 strategy. Okay. Lastly, the message I want to leave you with is simple. Our journey is about moving from strategy to results, and from results to long-term value. And that concludes our presentation today. Thank you.

Thanks, Adrian. Please stay on the stage, and let me invite other speakers to join us on the stage as we move to the Q&A session. When we start the Q&A, if you have a question, please raise your hand, and our colleagues will bring you a mic. Please limit your question to one so that more people can participate. Before asking, please state your name and company name. So maybe give our management team a moment. All right, let’s get started. Our first question from Luo Chen.

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[Foreign Language] So on the second part of the question regarding capital return and some of the strategic transactions, obviously, as a policy, we are not able to comment on any particular M&A transactions. But in terms of our philosophy, we have been adopting a very prudent approach towards M&As, and it will be continue, the case. And we set a very high bar. So only to the extent a transaction that creates a lot of value to our shareholders, when it's very strategically sound, then we'll potentially consider. And it's worth noting that, obviously, all the M&A transactions is subject to rigorous internal discussions as well as discussions with our Board. So that's the first part. The second part of that question on capital return, in particular, is, I guess, what we can share at this point in time is we currently do not have a plan to change our capital return, which is shared earlier today just now. And we have been a very shareholder value-conscious company, and it will continue to be the case. Hopefully, that addresses your question, Luo Chen. Thank you.

Let's take our second question, Michelle from Goldman Sachs.

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Let me comment on two things: competition between the local and multinational, and then the membership. This is my humble opinion and humble opinion only. I don't think the origin of whether a company is multinational or local is the biggest deciding factor about the result. What matters more is who are running the business. If we look at the local player, why are they so strong? By the way, we have so much respect for them, and we keep learning from them. I cannot agree with Warton more. And our optimism is always good time builds confidence, bad time builds character. If it's challenging, that means we have something to learn from the local, like the lower-tier city. We need to learn from them how to be very effective in lower-tier city. And we are learning, which is brilliant. But who are the local players? They tend to be run by the founders. Look at the local player. Founders run businesses. My god. Founders, they're motivated. They're hard-working. They're insightful. Many good reasons that they have in order to be successful, except brands or money. But what matters in a company? Of course, people first. And then you look at the multinationals, and I'm pretty straightforward to my fellow friends or whoever from all over the world. I do personally believe that cultural difference or even language difference is overrated. However, whoever wants to win in whatever market, particularly the Chinese market, better have the bloody sharpest insight of business judgment. That is not only necessary, but also absolutely critical. And if we look at the multinationals -- I'm not only talking about my industry. Overall, there are some really, really good multinational companies doing really well in China. If you look at the management team, there's something interesting. I'm not going to name some of them. They send the A team over, the best team over. Whoever -- if they can make it work in China, then they might have future career in the headquarters. That is the type of people they need to send over because this is not the market for soft people. This is for tough competitors. But if the multinational only sends over the B team or C team, then I'm sorry. The top-notch MBA school does not give you any advantage in that regard. I went to one of them, right? But it's the real deal. We need real business people to compete. So from my humble opinion, it really has very little to do with whether you're multinational or local, it's whether you have the best team. And I have seen people who don't speak Chinese and work really, really well here, produce good results. And then come to the membership. We need another session to give more granularity of the active membership, but it is sort of the first time we share about active members. And what we want to get our team to focus on is move from quantity to also quality. We've been building a very, very big membership base, so big that it's bigger than the U.S. population. So at the same time, we have been focusing on the quality. Therefore, for the number of our best customers who has a black card, which is not for sale, only to be given from a brand to them, there are 1 million of those in China. Not a small number. And the minimum requirement is more than 100x shopping with KFC a year. And that's pretty high frequency. So we want to drive frequency. We want to focus more, even more on the quality. And when we look at what is active member, right now, we define it as a customer who shops with us in the last 12 months. It is about 265 million, and we want more of them. Once we get to 12 months, we might look at, you know, six months and three months, but one step at a time, but this is the beginning. Thank you, Michelle.

Our next question from Lillian, Morgan Stanley.

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[Foreign Language] We really are very grateful that this year, we have the luxury to look at the long-term strategy. And I call the long-term strategy a luxury because during the COVID time, we just do have to be very, very efficient and effective in dealing with whatever unexpected thing. And then by end of 2023, we already noticed that the market is not the same anymore. So by 2024, which is last year, that's when the challenge -- looking back, the challenges are the most critical one. But at the same time, our team were most productive one. Our team have a huge amount of innovation coming out of it. K-Coffee, we started -- when did we start K-Coffee? 2024, I still remember our conversation. 2024, how many K-Coffee we want to have extra growth driver. And then 2024, Pizza Hut have the WOW. Because whatever we were doing seems to losing that momentum, we need something very different. We are very open-minded. The menu, the pricing and the operation of Pizza Hut is completely different. But that's the beauty. When things are very challenging and we have amazing team, then the innovation come. And actually, to make it really, really simple, how do we define strategy, where to focus, come down to 2 factors: core competency or capability and where are the opportunity. 2x2 matrix, very simple. And then where to focus? Well, whatever our team, we are excited what we are good at. And then I'd like to summarize things into one sentence so that my entire group of RGM 300,000 people team, they understand. [Foreign Language] Let me do my own translation. With the core competency, with the competent team, even when there's very little opportunity, we can see the pockets of opportunity just like a piece of gold just shining at us. If the team is not capable enough, even the goal is in front of us, we cannot pick it up. And this is -- I learned from Japanese, too. And that's what we focus on, and it works. And it gives us a reasonable level of optimism. The market will continue to be challenging. By the way, with or without macro challenge, China market is always challenged because it's so big. It has so many opportunities going forward. Why would anyone not want to come? So we better take it for granted and try to find a way to focus on the high-growth one. With good team, we will find opportunity no matter how and when. We'll move to the next one.

Yes, sure. As to the particular breakdown by brands in our guidance. First, we would like to clarify that the $10 billion plus -- RMB 10 billion plus is a jump, true, right? Whole figure, a milestone figure. What we mean is really, we aspire to be the first brand to get to that milestone. That doesn't mean we give guidance for 2028 is $10 billion. We're definitely higher than that, right?

Plus. Look at the plus.

Yes. But specifically on the breakdown between the brands, we would expect KFC's growth CAGR to be similar to the group's growth CAGR that we shared just now. And then Pizza Hut, as Jeff already mentioned in his presentation, will be high single-digit system sales growth CAGR and double the OP in five years, which really translates to mid-teens of OP growth CAGR, right? Which is a significant step up. By the way, I would like to add a couple of additional color. That high single-digit system sales growth CAGR for Pizza Hut, we even expect next year to achieve that, right? Remember, this year is only like a 3% to 4% system sales growth for Pizza Hut, and next year is a significant step up. So that's on one hand, the breakdown between the two brands. And then speaking of the Group, I mentioned in my remarks that all the guidance we shared is prudent, meaning that we do not account for any improvement in macro, which actually, we are confident there will be improvement in macro, we're talking about China fundamentals. And it also does not account for the full potential of the new store models and initiatives that we're currently developing, right? We will definitely update the market when some of these initiatives become more mature and in scale. Lastly, I think it's important to note that we mentioned that we have double digit EPS growth in the next three years with double-digit per share growth in the next three years on CAGR basis. What does that mean, really? It means EPS growth, coupled with our capital return, that almost delivers to our shareholder without a multiple re-rating, delivered to our shareholder a teens percentage of almost guaranteed total shareholder return, right? I don't think the “almost guarantee” is the perfectly legally right figure -- way to say it. But, as all of you may appreciate, the single most advantage for Yum China is really the execution certainty, right? Whatever we promise the market, we either meet it or beat it. And Jeff told me just now that he would like to add some additional color on the Pizza Hut role. With that, I will pass it to Jeff, please.

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Thank you, Joey. Very insightful. Sorry, that's all the time we have for the Q&A, as we want to save some time for you to interact with management directly. For those of you joining online, this is the end of our webcast. And thank you very much for your participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]